The Ace Investor - Value Pick
(BSE:506128) PARNAX LAB LTD.
Company listed on BSE, Currently trading around 41-42 with a market cap of under 40 crores.
Promoter Holding is at 61.26%, Total Debt on the books is at just about 30 crores.
15% of total promoter holding is pledged for secured loan included in the above total debt figure it comes at 9.19% of the total share-capital.
The company as mentioned above has giant pharmaceutical companies as its client.
Coming to financials, The standalone numbers are not impressive but if we take a look at the consolidated numbers the company is turning around at a good pace, Check the annual result table below:-
Particulars
|
FY12
|
FY13
|
FY14
|
Period
|
12
months
|
12
months
|
12
months
|
Sales
|
93.06
|
55.82
|
68.57
|
Operating
Profit
|
0.36
|
7.44
|
8.28
|
OPM
|
0.39%
|
13.33%
|
12.08%
|
Other
Income
|
0.63
|
0.96
|
1.10
|
EBIDT
|
0.99
|
8.40
|
9.38
|
Interest
|
4.25
|
3.82
|
3.65
|
Depreciation
|
1.90
|
1.93
|
2.10
|
Profit
before tax
|
-5.16
|
2.64
|
3.64
|
Tax
|
-2.37
|
0.93
|
0.91
|
Net
profit
|
-2.80
|
1.71
|
2.49
|
EPS
|
-3.29
|
2.01
|
2.93
|
As it can be seen above, The company is a relatively new pharma company after the merger of three subsidaries and it is turning around, For FY12 company was in loss and after FY13 it has shown sales growth of 22.84% YoY in FY14.
This was the performance till FY14, Now let us take a look at FY15.
Company recently announced stable numbers for Dec-14 Quarter, and now we are only one quarter away from getting the FY15 number.
Check the table below for the FY15 quarterly performance so far:-
Particulars
|
JUN 14
|
SEP 14
|
DEC 14
|
MAR 15
|
FY15
FULL YEAR
|
(In Crores)
|
|
|
|
PROJECTED
|
PROJECTED
|
Sales
|
21.30
|
27.03
|
28.76
|
28.76
|
105.85
|
Net profit
|
0.89
|
1.78
|
1.66
|
1.66
|
5.99
|
Adjusted EPS in
|
1.05
|
2.01
|
1.96
|
1.96
|
6.98
|
As seen above we have taken the flat Dec-14 performance to be repeated in next quarter which will take the sales to 105.85 crores and EPS to 6.98.
Price to earning ratio of the company comes at around 6 by taking the projected FY15 number.
P/E of 6 is extremely low when compared with other pharmaceutical stocks and industry average of more than 30.
Now this being a turn-around story, As i have said in past while looking for turnarounds i prefer to go for companies at cheap valuations which have already turned around rather than going for companies which are still showing losses and yet to turn-around.
Parnax promoters have bought 30,100 shares from open market on 3rd February 2015 around the price of 32.50
Recently another Pharma company named "Godavari Drugs" has turned around, It has business similar to Parnax but the clients and product line information is not known. The Godavari promoters have been aggressively increasing their stake by buying from the open market and have increased their holding to just less than 50% now.
If we see the trailing numbers for Godavari it has sales of just 42 crores which is a lot lower than Parnax, Net Profit is at 3.73 crores and the EPS is at 4.97.
Godavari Drugs from the beginning of 2014 has shown a huge rally (from Rs 7.77 to Rs 72.60 with recent 52wk High of 86.85) to trade at a P/E of 17.47.
While Parnax from the beginning of 2014 was at Rs 50 and now is at 41 which means there has been no rally despite the turn-around and the P/E of around 6 is extremely cheap.
Parnax stock can undergo heavy re-rating and if Parnax keeps growing at this rate which it should then it should be trading at significantly higher valuations.
As said Godavari after turn-around traded at a P/E of 17.47, Similar pe of around 15 will take Parnax to 105 levels if full year EPS is actually at 6.98.
All in all i feel Parnax is a value pick right now and investors should go for it, Last few days heavy accumulation has been noted in Parnax after December quarter results announcement which might be promoter buying yet to be disclosed to exchange.
105 would be fair level for Parnax with current set of earnings however in future if company expands with the FDA approval and does the right things it can trade at significant higher levels and I feel something great can be cooking in this counter since promoters have purchased from the open markets and earnings have improved simultaneously.
If Godavari can trade at 17.47 P/E so should Parnax which has higher sales than Godavari.
