#Lauruslab What went wrong

ARV formulations was 1500 cr business for Laurus, they didn't participate in tenders in Q1 at lower pricing thinking that would have impacted long term margins for entire 1500 crs. Q2 pricing went down further. Took them 2 qtrs to adjust to this.. People say it couldn't deliver on promise. It has actually delivered fantasticaly on nonARV, CDMO.

ARV is where it went wrong and that was because of change in business dynamics similar to what happened in US generics few years back. Players are still not able to adjust to that

Time to switch from FMCG to IT.. My bet is on #INFY

Around year back we discussed that “IT is new FMCG” and market actually recognized this and lot of IT companies trading at 50-60x. I feel one needs to be selective in IT. Not every ER&D is #TataElxsi. #TataElxsi has its own quality. That’s where I called it CRADS (Contract Research and Development Services).

Cloud, Digital, Blockchain, AR/VR, Robotics, 3D Printing, IoT, AI, ML, Meta…complete transformation of how businesses work and consumers react. Mammoth opportunity

#IBullreal results have no significance at this point. Key points to understand –

Debt reduction – Ibulllreal will be debt free at the time of merger with 650 cr coming from Mr Gehlot and 580 crs from land sale to Elan group. Embassy will have 3000 crs debt out of which 1500 cr will be reduced through QIP and rest 1500 crs will come from collections next year. So merged entity will be zero debt company in FY23

Sales potential – Launched + planned projects have 18000 cr sales potential with 3400 crs of near completed inventory. Pending cost is 3900 cr

#Lauruslabs Dr Chhava speaks about Care, Innovation and execution...Must watch



- CG is for benefit of ourselves and stakeholders
- Collegues, thier families, come first, shareholders come last in the list
- Mediclaim premium for CEO and chemist is same - Customers and vendors both treated equally well
- Canteen is free for all, everyone including CEO and contract workers eat same food

- Dilution in early years was high due to the design of the company. It started as R&D company. Before hiring first person in mfg, R&D had 350

#Nifty EPS (Dec’19) = 563. Nifty was trading around 12000 (21x TTM PE) in Feb 20. After corona, it crashed to 7500. Assuming similar PE, market factored in 30%-40% EPS contraction for Dec’20. In reality, EPS contracted only 14% (Dec’20 EPS = 483)

Today if another corona wave comes, we are much better prepared, lesser uncertainty and India is best placed among all the geographies. Last time, world assumed India would collapse given the size and population, but we did far better..

Nifty earnings have improved significantly in last year and

#Lauruslabs

There’s lot of confusion and concers around whats happening in Laurus and I thought of putting my view

There are two main concerns
1.RM costs – this is universal to all pharma companies, but eventually will get sorted
2.ARV sales – this seems the bigger concern. Because of regimen change (Efavirenz to Dolutegravir) and 30-day to 90-day pack, governments are in process of clearing the inventory which caused sales to go down. This may continue for a quarter more, but Q4 looks good..

Some might feel, funding may divert to Covid.

There is no easy money in stock market

It’s really worrisome to know that many people are coming in the stock market for short term trading after this bull market rally. Came across many young minds who are ignoring their core competency and focusing on trading. Don’t extrapolate post-corona market returns. This was aberration, abnormal, unusual. Its impossible to earn similar returns every year.

Focus on your core competency and career. Trading will ruin both your career and wealth

Music doesn’t last long. Invest in building your

#Ajmerarealty - project execution, faster land monetization and profit visibility can re-rate stock

MMR remains the best market for RE in India because of good demand, realisations and limited supply.

Ajmera realty has got 20 Mn sq ft development potential similar to Oberoi This is fully owned and completely paid for as against Oberoi where part of it is under JDA and DM model.

Both are MMR focused players.

Oberoi generated 1650 cr projects revenue, 322 cr rentals in FY21. Ajmera will have similar P&L after 5 years with almost 1500 cr project

#IBullreal – top pick in the sector. Brand, Balance sheet, execution and access to low cost funds will drive value for the combined entity

Post merger, #Embassy will own 45% and Blackstone 10%. This will create institutional platform for investment in real estate sector and combined entity will be one of the largest real estate companies in India.

In terms of valuation, 18000 cr net surplus, 2000 acres of land valued around 8-10 crs per acre, 1400 crs SEZ land, 42 Mn sq ft commercial space (potential of generating 4200 crs rentals) available at EV

#RealEstate – story of structural reforms. Brand, Balance sheet, Execution and access to low cost funds will drive the value

Last 8-10 years, real estate sector faced multiple challenges with huge inventory build-up, demand slow down, liquidity crunch, drying source of funds.. Sector has given very lackluster performance for these years, but dynamics are now changing with reforms done by the government like GST and RERA. Demonetisation was actually negative for the sector in the short run but for long term, it proved to be a boon.

#Suvenpharma

My analysis after Concall
-ANDAs contribution to PAT was zero in FY20. It will be biggest growth driver for company with 5 already launched and 6-7 getting launched next year. Company working on one 505 b(2) opportunity which can materialize after Mar 22.. this can be large opportunity..Overall I estimate ANDAs to contribute 200-250 crs PAT in next 3 years..
-Rising pharma contribution was 46 crs in FY20. With company out of bankruptcy and 100+ ANDAs pipeline, PAT contribution will keep rising..

#MSTC results - right way to look at these numbers is to add back provisions to PAT and then compare. If add provisions to PBT and then take tax rate as 33%, your number will match with the reported tax.

Provisions relates to cash and carry business which has been stopped a year back. There was around 120 crs of provisions related to that. I wish it should write off everything once for all so that it can start next year on a clean slate..

Only negative according to me is no Q-o-Q growth in e-comm revenue which I was expecting due to higher

#Lauruslabs ARV - Cash machine

People are very critical of ARV business of Laurus but it has the best dynamics for Laurus. Unlike other APIs (Paracetamol, Ibuprofen, Azithromycin, Metformin etc.) where there are more than 20-30 players globally, ARV has only 6 players (only 4 serious players – Mylan, Laurus, Auro and Hetero) globally with Laurus being world leader. This leadership has come from years of research and process innovation. It is the lowest cost producer in the world for these APIs.

#Lauruslabs – PE expansion inevitable…

Henceforth, every qtr will post better nos than preceding qtr…story will continue for next 8-10 qtr..It will have EPS of 18/27/35 for FY21/22/23..almost 100% growth in next 2 years with much higher contribution from CDMO, biologics and Non-ARV API and formulations…Current RoCE of 40%..should remain above 30% for next few years..

PE expansion is inevitable…

#Lauruslabs concall takeaways
- Strong focus on growing Non-ARV business. Future growth drivers are CDMO, Biologics, Diabetes, Cardi-vascular.

#MSTC – With and without #Scrappagepolicy

Scenario 1 – No Scrappage Policy

As promised by management, MSTC will be able to clean up the balance sheet by Sep’21. Trading business is already closed. FSNL divestment has started by DIPAM. Post Sep’21, MSTC may have around 800 crs cash (assuming 300 crs proceeds from FSNL) in the BS, Rs 115 per share..

It will have E-Comm as the only business with multiple opportunities which are detailed in the note attached below..

#Suven – Journey of my first 50 bagger…

I bought #Suven first in Apr 2013 around Rs 20…today after almost 7.5 years, its Rs 1000 (Suven pharma 920 adjusted for bonus + Suven Life 80)..CAGR of almost 68% for 7.5 years. I am fortunate to hold it throughout the journey and

1/n add on multiple occasions on way up. Like to share my experience in this thread for everyone’s benefit..

First time I bought because I like the management focus on R&D. It had chosen the most difficult therapeutic area in pharma which is CNS and it was investing the cash

2/n

#SuvenLife – Niche R&D play..very high risk and very high reward…key is right allocation…

Jazz Pharma was quoting around $0.5 in 2009, today its $150 and Mcap of $8.5 Bn on Nasdaq..almost 300x in 11 years. 80% of its total sales ($2.1 Bn) come from single drug Xyrem. Axovant Lifescience, bought Alzheimer molecule from GSK, repackaged it and done phase-3 trials. Before starting the trials, the valuation was $2 Bn, just before announcing the data, it rose to $3 Bn. One of the leading broker put the target of $12 Bn if the trials succeeded..

Suven Pharma – Becoming more relevant for customers…

“Crucial alliances were forged. Important investments were made. Strong associations sustained. We chose to widen our canvas. Heighten our vision” “There is no API as of today. But we can manufacture APIs if our customers desire so”

“There is only one formulation as of today. Creating a basket of formulations for our CDMO customers could be an opportunity”

Laurus Labs – A process Innovator and a CRAMS player – deserves much higher multiple

With more than 100 process patents on his name, Dr Chhava has created a sustainable competitive advantage for Laurus Labs. Similar to drug innovator enjoying 15 years patent protection, Laurus enjoys patent protection for its economically viable and innovative processes for different APIs like Efavirenz, Tenofovir, Dolutegravir, Metformin, Ivacaftor and many more..

Laurus developed novel and cost effective process for Efavirenz which reduced the cost by 50%...

Cloud & Digital – Multiple times bigger than Y2K for India…

Covid has accelerated cloud adoption in the world with more and more organization moving to cloud..Healthcare is shifting its data centers to cloud..patient records are getting moved to cloud..EHR software, ERP software, HR and payroll software.. everyone is coming up wtih cloud enabled version..In next 10 years (and I am conservative here..), everything will be on cloud…Own data centers will be an obsolete concept…

Big pharma is using cloud for drug discovery.

Laurus Labs Q1FY21 results – My take – Operating leverage kicked in finally..Re-rating will follow..

When I bought Laurus Labs 2.5 years back, my hypothesis was…with the capacity that they put in ..it can generate 4000 crs top line and 15% NPM.. and I kept on asking management about the idle gross block in almost every conf. call…but the approvals got delayed and idle gross block was stationary..finally there was light at the end of tunnel…the hypothesis started playing out since Q4FY20…