Category Archive : Stock Market

Why Avenue Supermarts (D-Mart) Stock is Falling? (Q3 2019 Results)

Here, we are going to study the Q3 results of D-Mart and why those results have had such a negative reaction on the company’s stock. There was almost a drop of 11-12% in the stock price of D-Mart on 14th January 2019. The stock fell by almost Rs. 170 from the levels of 1,570 to 1,400 levels.

Q3 Results

In Rs. Crore Dec-17 Dec-18 YoY Growth
Sales ₹4,094 ₹5,451 33%
Operating Profit ₹422 ₹453 7.5%
Net Profit ₹252 ₹257 2%
  • Sales
    • Traditionally, every year Avenue Supermarts grows around 30-40% in all parameters. And same can be seen in the case of sales.
  • Operating Profit
    • The growth in Operating profits has fallen very low as compared to its traditional growth of 30-40%.
  • Net Profit
    • In Net profits too, there are hardly any growths, which are very negligible in front of its traditional growths.
    • This were the most disappointing numbers. And also the major reason behind the stock price fall.
  • Avenue Supermarts used to enjoy its rich valuations because of these high and constant growths every year in all parameters. The stock which used trade with P/E around 100 has fallen to trade with P/E around 90.

Future Outlook

Mar-18 In Rs. Crore Dec-17 Dec-18
₹3,810 Sales ₹4,094 ₹5,451
₹294 Operating Profit ₹422 ₹453
₹167 Net Profit ₹252 ₹257

The next quarter, that is March 2019, may get Avenue Supermarts back on track as March 2018 will provide a lower base. So, even if Avenue Supermarts continues its current margins, then it may be able to regain its traditional growths.

But this does not mean that we should take calls based on predictions of that quarter in the short-term.

Definitely, Avenue Supermarts won’t be able to maintain such rich valuations but is look at the business of Avenue Supermarts in the next 5 or 10 or 15 years, then this company looks as a very good investment option.

Reasons Behind the Low Net Profits leading to Stock Price Decline

Why were the net profit numbers so disappointing? The major reason can be traced out as follows: –

  1. Increased Competition from E-commerce Companies –

They have started experiencing competitions from companies like Groffers, BigBasket, etc. To tackle this D-Mart too has increased its focus on its e-commerce segment.

  • Sales from Same Store Growth (SSSG) –

Previously, this numbers generally used be up by more than 20%, but the analysts predict that this growth this time may settle down around 15-18%. The actual numbers will be revealed in the annual report of the company.

  • Price Cuts –

The company has absorbed a lot of price cuts in this quarter. The sales growth can be seen at 33%, but because of the price cuts the margins shrunk which resulted in only 2% and 7.5% growths in net profits and operating profits respectively.

D-Mart had to make these price cuts to compete with Big Bazaar and Reliance Retail.

  • Real Estate (their stores) –

The company believes in buying a property for opening up their new stores rather than leasing or renting it. If they don’t have enough cash flow, then they take on debt to buy the properties. And some of such new properties are not giving expected growths. There they have to compulsorily have to return the rate of interest charged on the loan, but those stores are not generating enough cash flow to repay those debts. Thus, D-mart then has to direct the cash flow from their other profitable stores. Therefore, real estate investment have proved to be a little troublesome for the company according to the current trend (which does not mean that the trend will continue).

They opened 2 new stores in Q1, 3 in Q2 and 4 stores in Q3. They had targeted to open at least 20 stores in the year 2018-19. So, this looks a little difficult as they may not ad 11 stores in the last quarter.

When u look at all the above parameters, then it can be questioned whether such rich valuations (P/E-108, What is ROCE (Return on Capital Employed)-22%, What is ROE (Retuen on Equity)-20%) are sustainable or not.

Summary

  • The fundamentals of the company are still very strong. But they may not be able to maintain the rich valuations it is enjoying right now.
  • If this stock is on your radar, then buying this stock at a 30-40% downward trend from the peak can be thought of.

Notes: –

  • We are not suggesting anyone to go and buy this stock immediately.
  • Nor are we forcing anyone to go and invest in stock market.
  • In no way it has been said that this a bad or a good company. Only a view on it Q3 results has been presented here.

TCS v/s Infosys Company Performance Analysis (Q3 Result Update)

A comparison between TCS & Infosys has been presented here. The comparison is completely based on their Q3 results. We will also discuss about a new revenue segment talked about by technology sector companies. There is also a lot of chatter on the media relating to this and how it is changing things.

TCS

In Rs. CroreQ3FY19 Q3FY18 YoY Growth (%) Q2FY19 QoQ Growth (%)
Revenue 37,33830,90420.80% 36,8541.31%
Operating Profit 11,246 9,157 22.81% 11,008 2.16%
Net Profit 8,1056,53124.10%7,906 2.58%
  • Revenue
    • A very healthy growth on Year-on-Year (YoY) basis [Oct-Dec Quarter of 2017 & Oct-Dec Quarter of 2018]
    • If July-Sept Quarter 2018 is compared with the current Quarter (Oct-Dec 2018), then there is hardly any growth in their revenue, which is a very disappointing growth.
  • Operating Profit
    • The YoY growth looks very good but the QoQ growth again looks disappointing.
  • Net Profit
    • A very healthy YoY growth. But the QoQ growth, here too, has the same story.
  • The QoQ growths are very muted. No positive reactions can be seen in the media too, about the results.
  • The stock price of TCS has obviously fallen after the declaration of these results.

Infosys

In Rs. Crore Q3FY19 Q3FY18 YoY Growth (%) Q2FY19 QoQ Growth (%)
Revenue 21,40017,79420.30% 20,6093.80%
Operating Profit 4,830 4,319 11.80% 4,894 -1.30%
Net Profit 3,6105,129 -29.60% 4,110 -12.10%
  • Revenue
    • The YoY growth of Infosys is on similar line with that of TCS. The QoQ growth are not that exciting.
  • Operating Profit
    • The YoY growth is very disappointing compared to other IT companies. The QoQ growth is negative that is it has declined in actual terms.
  • Net Profit
    • The operating profit has increased, which would mean that the business has definitely grown. In 2017, in Oct-Dec quarter, Infosys had received an Income Tax set-off because of which they had hardly paid any taxes at that time. But this time they didn’t receive any set-off. Last year, they had paid tax of around Rs. 150 crores and this time they have paid tax of almost Rs. 1,500 crores. That is why there is such a huge drop in the YoY growth.
    • In YoY growth the fall is justified, but in QoQ growth the profits have definitely fallen, which is not a good thing.
  • The results of Infosys look negative as compared to TCS.

Digital Business of Infosys & TCS

Companies, particularly technology companies, have started displaying their revenues in 2 types – digital business and core business.

For this, we searched and looked around a little to know what this digital business is exactly. What is this new business segment where all the companies are trying to establish themselves and they are experiencing growths? Even if you google about it, you will not find any concrete definition or explanation on digital business. No answers could be found as to what is this digital business of these technology companies and what their core business is.

When a certain people who work at good positions in top IT companies were asked about it, it was found that this Digital Business is all a imaginary definition of growing segments of business. It is just a tactic used by these companies. If one is talking about information technology, then everything is digital only. All of this is just a propaganda and one should not focus on this.

One should only focus on the Total Revenue growth as it is the most important aspect to watch out for in any technology company or any other company. The underlined theme to understand here is that growths in revenue, operating profit and net profit are the things to concentrate on. Companies are just trying to confuse by claiming to make huge growths in digital business and their core business is a little sluggish, because of they look declining. But the truth here is that it is all a marketing gimmick to divert the attention.

Also, this does not mean that TCS and Infosys are bad companies. They are among the top IT companies in India, but they may just be doing this because of competition.

Below you can see their digital business and core business revenues: –

  • TCS
In Rs. Crore Q3FY19 Q3FY18 YoY Growth (%) Q2FY19 QoQ Growth (%)
Digital Business 11,2396,830 64.55% 10,319 8.92%
Core Business 26,09924,0748.41% 26,535 -1.64%
Total 37,33830,90420.82% 36,854 1.31%
  • Infosys
In Rs. Crore Q3FY19 Q3FY18 YoY Growth (%) Q2FY19 QoQ Growth (%)
Digital Business 6,745 4,379 54.03% 6,769 -0.35%
Core Business 14,642 12,399 18.09% 15,080 -2.90%
Total 21,400 17,794 20.27% 20,609 3.84%

Note: – The numbers shown above are just to explain you how the companies are presenting them. One should not focus on these digital business numbers and judge these companies on its basis.

Notes: –

  • We are not suggesting anyone to buy the stocks of these companies. Only their Q3 results have been discussed.
  • No claims are being made as to which company is better and which is not.

Bata India Ltd vs Relaxo Footwears Ltd – Which one to invest in?

Bata & Relaxo are two close competitors on Footwear market. Both are good companies and have generated good wealth for investors in last few years. We will compare two of them on following parameters –

Parameters Bata India Relaxo Footwears
Market Cap (Rs. crore) 14,500 9000
P/E Ratio 56.26 51.2
ROCE 25.43% 29.63%
ROE 16.20% 23.51%
Promoter Holding 52.96% 74.25%
D/E Ratio 0 0.2
P/B Ratio 9.34 10.97
PAT Growth (5 Years) 5.43% 29.10%
Sales Growth (5 Years) 7.37% 14.81%
Free Cash Flow (Rs. crore) 214 90
  • As per their Market cap, both the companies have just got promoted from small cap to mid-cap category.
  • If PE values seen alone both the stocks seem to be over-valued. The reason behind this is that these are the only 2 organized companies with a presence all over India, get allocated by everyone, have no issues in corporate governance and also have nice market shares. (Paragon is an unlisted company, that is why it cannot be considered here)
  • Generally, it is said that P/E ration & ROCE should go hand-in-hand. So, looking at ROCE too, Bata India seems over-valued. On the other hand, ROCE of Relaxo Footwears in more and its P/E ratio is also less.
  • In ROE too, Relaxo Footwears scores better than Bata India.
  • The promoter holding of Relaxo Footwears is better than that of Bata India.
  • Relaxo Footwears have brought down their D/E ratio from 1.2 to 0.2 over the last 5-6 years, which is a very good job, and as per the current scenario the company may soon become virtually debt-free.
  • In P/B ratio, Bata India scores a little better as compared to Relaxo Footwears.
  • There is a huge gap in the Net Profit (PAT) growth of the 2 companies.
  • In sales growth too, Relaxo Footwears scores better than Bata India
  • It should be noted that it is very important that free cash flow should always be positive. These are Trailing Twelve Month (TTM) free cash flow of these companies.

Summary

  • Relaxo Footwear outscores Bata India in 6 parameters (P/E ratio, ROCE, ROE, Promoter Holding, PAT growth & Sales growth)
  • Bata India outscores Relaxo Footwears in 2 parameters (D/E ratio & P/B ratio)
  • Relaxo Footwears & Bata India are at par in 2 parameters (Market cap & Free cash flow)
  • Thus, in quantitative analysis, Relaxo Footwears seems to be a better company than Bata India. (This is just quantitative, qualitative analysis will provide better insights in to the 2 companies)

Benefits of Being Promoted to a Mid-cap category

As these companies have now become mid cap companies, they can enjoy more and better allocations from the mutual funds. More institutional money might be invested in them.

Share Movements of Relaxo & Bata

  Bata India Relaxo Footwears
3-Year Returns (CAGR) 33.24% 17.62%
5-Year Returns (CAGR) 17.30% 41.84%

3-Year Returns

  • Bata India

PAT growth & Sales growth in the last 3 years was very negligible. Same numbers of sales & PAT are continued from the last 3 years. But still the stock of this company has given returns of around 33.24%. Institutional investors think that Bata will yield great results in the future, that is why its future earnings have been discounted and given the stocks its current pricing.

  • Relaxo Footwears

Relaxo has underperformed in the last 3 years. This is so because, the years before that were very rewarding for Relaxo Footwears and averaging has taken place now.

5-Year Returns

Here, the situation has completely reversed.

  • Bata India

These numbers indicate that the future returns of Bata may get averaged or the returns might not be that good. Although, the #-year type of return values may continue in the future if the company live up to the expectations and achieves expected results

  • Relaxo Footwears

These numbers are in hand with their 5-Year PAT and Sales growth.

Summary of Stock Movements

  • The market has a lot of expectations from Bata India. If the results of Bata are good, then the stock may maintain or grow its position in the market. But if the results are not satisfactory, the Bata India stock will get beaten up by the market players.
  • Comparatively, Relaxo doesn’t look that much over-priced.

Note: –

  • We are not suggesting anyone to immediately go and buy these stocks or invest in stock markets.
  • The returns mentioned above are not fixed. They vary from stock-to-stock and time-to-time.

Re-Categorization of Stocks in Indian Share Market based on Market Cap (Upgrade and Downgrade)

20 Stocks which have been Re-Categorized (Small Cap to Mid Cap & Mid Cap to Large Cap) in the Indian Stock Exchange in 2019 based on Market Cap

On 1st January 2019, SEBI re-categorized its stocks again. After that some promotions and some demotions have taken place in the large cap, mid cap and small cap companies.

Market Cap Classification

  • Large Cap – Top 100 Stocks based on Last Six Months Average Market Cap
  • Mid Cap – 101-250 Stocks based on Last Six Months Average Market Cap
  • Small Cap – Beyond 250 Stocks

Every six months SEBI releases a new list of this categorized companies, so that the mutual funds can invest according to their categories. That is large cap fund should invest 80% in large cap stocks, multi cap funds can invest across the categorization, mid cap funds should have minimum allocation of 65% in mid cap companies and small cap funds too similarly.

In this new list, some companies have been promoted and some have been demoted based on the average market cap from the period of 1st July 2018 to 31st December 2018.

Companies that got Promoted from Mid Cap to Large Cap

CompanyAvg. Market Cap (Rs. Crore)
Divis Lab34,975
United Breweries33,095
Page Industries32,702
Indiabulls Ventures Ltd31,823
L&T Infotech Ltd30,206
Berger Paints India Ltd29,939
GSK Consumer Healthcare Ltd29,660

The companies on this list used to be mid cap companies earlier which now are large cap companies. These are the average market cap of the companies from the period of 1st July 2018 to 31st December 2018. Though their market now maybe different but these are their average market caps for the above period.

L&T Infotech Ltd gained advantage because of the rupee depreciation rally that took place last year. And the run that IT companies experienced in the last year also benefited L&T Infotech Ltd.

The fluctuations in the crude oil prices has benefited Berger Paints India Ltd. The dollar has dropped from 85 dollars to almost 50 dollars which has helped Berger Paints India Ltd.

The merger of GSK Consumer Healthcare Ltd with Hindustan Unilever Ltd was a very positive news for GSK Consumer Healthcare Ltd.

Companies that got Promoted from Small Cap to Mid Cap

CompanyAvg. Market Cap (Rs. Crore)
Bata India Ltd12,550
Schaeffler India11,412
Alembic Pharma11,047
Aarti Industries10,818
Solar Industries9,834
Mahindra CIE Automotive Ltd9,826
Atul Ltd9,390
Ipca Lab9,312
Relaxo Footwears9,305
Phoenix Mills9,203
Gujarat Flurochemicals9,110
SKF India9,094
Thomas Cook8,856

The companies on this list used to be small cap companies earlier which now are mid cap companies. These are the average market cap of the companies from the period of 1st July 2018 to 31st December 2018. Though their market now maybe different but these are their average market caps for the above period.

Bata India & Relaxo Footwears, both of the huge footwear companies have been promoted. Both the companies have very good focus in India and these companies should be in the radar of any investor.

Now the companies in this list have been opened to up to new investments in them, which may be a very good sign for them as the allocations to these stocks can be increased.

Companies that got Demoted from Large Cap to Mid Cap

  1. Hindustan Aeronautics Ltd
  2. Bharat Forge Ltd
  3. Shriram Transport Finance Company Ltd
  4. Sun TV Network Ltd
  5. Aditya Birla Capital Ltd
  6. BHEL
  7. TVS Motors
  8. Bharat Electronics Ltd

Companies that got Demoted from Mid Cap to Small Cap

  1. Future Consumer Ltd
  2. Reliance Power
  3. Dilip Buildcon
  4. JM Financial Ltd
  5. Prestige Estates Projects
  6. Arvind Ltd
  7. Sun Pharma Advance Research Company
  8. Finolex Cables
  9. Reliance Capital
  10. KRBL
  11. Engineers India
  12. Symphony
  13. TV18 Broadcast
  14. Rain Industries
  15. Avanti Feeds Ltd
  16. Vakranjee Ltd
  17. PC Jeweller Ltd
indian pharma sector analysis, sun pharma, lupin, biocon, aurobindo pharma, cadila, dr reddys, cipla, divis lab, nse, bse, stock market, pharma stocks, best pharma stocks, top pharma stocks, pharma sector in india, pharma industry, pharma business ideas, lupin pharmaceuticals, cipla

Top 8 Pharma Stocks in the Indian Stock Market (Sensex & Nifty)

Pharma Sector Analysis in India (Listed Companies on Stock Exchange)

This analysis is done with the only purpose of screening out good companies. Analysis done is completely on quantitative basis. No suggestions are being made to directly go and invest in the top scoring companies of this analysis.

Let’s study some Pharma companies, we have selected the following companies for study and analysis (the companies are selected on the basis of market cap, the top 8 companies of that sector according to market cap): –

  1. Sun Pharma
  2. Dr. Reddys
  3. Aurobindo Pharma
  4. Cipla
  5. Divis Lab
  6. Lupin Pharmaceuticals
  7. Biocon
  8. Cadila Healthcare
Sr. No.Company NameMarket Cap (Rs. Crore)
1Sun Pharma103,842
2Dr. Reddys43,203
3Aurobindo Pharma42,501
4Cipla41,362
5Divis Lab38,721
6Lupin37,495
7Biocon37,101
8Cadila Healthcare35,282

The top 100 companies according to the market capitalization are called as the large cap companies. Companies from 101 to 250 (based on market capitalization) are the mid-cap companies and the rest, that is above 250 are the small cap companies.

All the companies here are large cap companies.

The analysis of these companies is going to be based on the following parameters. They are as follows: –

  1. Price-to-Earnings (PE) Ratio
  2. What is ROCE (Return on Capital Employed)
  3. What is ROE (Retuen on Equity)
  4. Debt to Equity Ratio (DE Ratio)
  5. 5 Years Sales Growth
  6. 5 Years Net Profit Growth

These parameters play an important role in the analysis of any company. This does not mean that one should be dependent only on these, but these parameters are crucial for initial screening.

First, we have given the companies their ranks and then accordingly we have assigned scores to those companies from 1 to 8, where 1 being the least and 8 being highest score. (total number of companies taken here are 8, that’s why the mentioned scoring card)

PE Ratio

Sr. No.Company NamePE RatioRankScore
1Sun Pharma28.3445
2Dr. Reddys27.5136
3Aurobindo Pharma19.2327
4Cipla28.3954
5Divis Lab33.7172
6Lupin30.4663
7Biocon68.9181
8Cadila Healthcare17.5118

PE ratio is nothing but what price an investor is paying for 1 rupee of earning.

The company which has the highest PE ratio has been given number 8th rank and the company which has the lowest PE ratio has been given number 1st rank.

But the company which has the highest PE ratio has been given the lowest score.

Biocon has the highest PE ratio and thus got number 8th rank and scored 1. Cadila Healthcare has the lowest PE ratio and thus scored number 1st rank and a score of 8.

ROCE

Sr. No.Company NameROCERankScore
1Sun Pharma10.41%45
2Dr. Reddys7.75%81
3Aurobindo Pharma22.85%18
4Cipla9.64%63
5Divis Lab21.37%27
6Lupin10.21%54
7Biocon8.41%72
8Cadila Healthcare18.28%36

The company which has the highest ROCE has the highest rank and has also been given the highest points. And the company which has the lowest ROCE has the lowest rank and has also been given the lowest score.

Aurobindo Pharma has the number 1 rank and scored 8 points. And Dr. Reddys has the lowest rank (8th) and scored 1 point.

ROE

Sr. No.Company NameROERankScore
1Sun Pharma7.70%54
2Dr. Reddys7.19%63
3Aurobindo Pharma23.13%18
4Cipla10.06%45
5Divis Lab15.34%36
6Lupin2.08%81
7Biocon6.56%72
8Cadila Healthcare22.64%27

ROE has been analyzed on the same basis as ROCE.

The company which has the highest ROE has the highest rank and has also been given the highest points. And the company which has the lowest ROE has the lowest rank and has also been given the lowest score.

Here too, Aurobindo Pharma ranked 1st as it had the highest ROE and thus scored 8. But here, Lupin ranked 8th as it had the lowest ROE and thus scored 1.

DE Ratio

Sr. No.Company NameDE RatioRankScore
1Sun Pharma0.2777
2Dr. Reddys0.455
3Aurobindo Pharma0.4144
4Cipla0.2966
5Divis Lab0.0188
6Lupin0.5322
7Biocon0.4433
8Cadila Healthcare0.6211

A lower DE ratio means that the company doesn’t require debt for its growth or for its working capital. That is the debt component of that company is very low and it can run its operations smoothly using the existing equity or reserves & surplus.

The company which has the highest DE ratio has the least score and the company with lowest DE ratio has the highest score.

Divis Lab has the lowest DE ratio and has thus scored 8. Cadila Healthcare has the highest DE ratio and has thus scored 1.

 5 Years Growths

Sr. No.Company Name5 Years Sales GrowthRankScore
1Sun Pharma18.94%27
2Dr. Reddys3.83%81
3Aurobindo Pharma23.02%18
4Cipla12.85%45
5Divis Lab12.38%54
6Lupin10.38%72
7Biocon10.66%63
8Cadila Healthcare13.37%36
Sr. No.Company Name5 Years Net Profit GrowthRankScore
1Sun Pharma-3.09%63
2Dr. Reddys-10.04%72
3Aurobindo Pharma52.08%18
4Cipla-2.45%54
5Divis Lab7.36%36
6Lupin-26.63%81
7Biocon-0.87%45
8Cadila Healthcare22.02%27

The company with the highest 5 Year CAGR in Sales and Net Profit get the highest rank and thus gets the highest score. And Vice-Versa.

Aurobindo Pharma has scored 8 in both, as it has the highest 5 years sales & net profit growth. And Dr. Reddys has scored 1 in 5 Year Sales Growth and Lupin has scored 1 in 5 Year Net Profit Growth, as they have the lowest 5 years sales & net profit growth.

Final Standings

RankCompany NameFinal Score
1Aurobindo Pharma43
2Cadila Healthcare35
3Divis Lab33
4Sun Pharma31
5Cipla27
6Dr. Reddys18
7Biocon16
8Lupin13

Aurobindo Pharma is on the 1st position with 43 points, Cadila Healthcare on 2nd with 35 points, Divis Lab on 3rd with 33 points and Lupin is on the last position, that is 8th with just 13 points.

The point here is to focus on the fundamentals of the company. Here, we have analyzed the company based on their current fundamentals. Also, the qualitative analysis of these companies will provide with a better outlook towards them

And quantitative analysis along with qualitative analysis will give a better understanding of which company is worth investing from here on.

Note:

  • We are not, in any case, suggesting buying stocks of any of the companies mentioned above. We have just provided a study on these companies.
  • All the data used is of Trailing Twelve Month (TTM)

%d bloggers like this: