Rohit has inquired ~ Shasun Pharma @ Rs 115 ~ Now in Reverse Gear from a Meteoric Rise inside Months ~ Prudent to Exit and Book Profits in this Fun Run

Rohit has inquired ~ Shasun Pharma @ Rs 115 ~ Now in Reverse Gear from a Meteoric Rise inside Months ~ Methinks it’s Prudent to Exit and Book Profits in this Fun Run…Rohit,seeking further exposure ,even for the long term is not advisable 

Shasun Pharma was just Rs 38 ( FV Rs 2) in December 2011 and in just over five months it had gained @ Rs 100 racing to a high of Rs 137 on May 25,2012…then this week it’s  been reversing fast and currently is @ Rs 115 

Price Movement (www.bseindia.com)

So what was the excitement all about in the first half of 2012 ? Is the Fun Run over !?…Well,in my humble view,Yes !

http://www.bseindia.com/xml-data/corpfiling/AttachLive/Shasun_Pharmaceuticals_Ltd_250512.pdf

The Consolidated Networth has climbed from Rs 84 crs at March 31,2011 to Rs 222 crs at March 31,2012 for two clear reasons ~ Preferential Placement of Equity Shares as below for Rs 50 crs and a FY 12 PAT that soared past Rs 100 crs from just Rs 27 crs in FY 11...Consolidated Book Value at FY 12 end is @ Rs 40…thats a near 3 multiple…too high in my view  

In the March 2012 Quarter there were two highlights

  1. Shasun preferentially allotted  6578947 Equity Shares at Rs 76 to a Mauritius based entity,Caduceus Asia Mauritius Ltd which is registered with SEBI as a Venture Capital Investor…The Equity Capital moved up to Rs 11.03 crs from Rs 9.71 crs ~ RBI has directed the Company to seek Government Approval for this Allotment…Caduceus is the subsidiary of US Healthcare Investment Firm OrbiMed Advisors and will have Director Representation on Shasun Board
  2. Shasun booked  a one time Profit of Rs 27 crs on sale of land and building at Velachery,Chennai

Full Year FY 12 Results reveals a Tax Benefit of Rs 21 crs which the Company has attributed to carry forward loss and unabsorbed depreciation arising from earlier years

With the Government showing great leniency in December 2011,allowing companies to capitalise FX losses and therefore not charging them to P & L A/c,Shasun has opted to adopt the new Para 46A in the Accounting Standard 11 …it allows adjustment to depreciable assets  for Fx differences on long term  Fx monetary items so far as they relate to the acquisition of such assets…for the remaining the difference is charged to a new account called the Foreign Currency Monetary Item Translation Difference Account and written off over the balance period of that Monetary Item

In FY 2011 Results it has opted under Accounting Standard 5 to show Option Contract Mark to Market  Losses of Rs 41 crs as a seperate item relating to prior years

Normal Profitability in FY 12 would be more @ Rs 50 crs and not over Rs 100 crs if the Tax benefit and Profit on sale of land are excluded…thats’s an EPS of @ Rs 10 and not Rs 20…and a multiple of 12 and not 6

The Long Term Borrowings are Rs 78 crs….just a  shade higher than in FY 11…..The Fixed Assets have climbed from Rs 260 crs at FY 11 end  to Rs 331 crs at FY 12 end….clearly exercising the AS 11 option kicking in here to warp the true asset picture…what in means is that as long as FX loans remain,the exchange loss on the depreciating rupee will be added on to the cost of the asset that the loan has financed !…this Treatment,though allowed by the Government, is dangerous as it creates misstatement of assets and liabilities 

Clearly Shasun Share Price has been pumped up in a short while to facilitate preferential allotment at Rs 76…supported deftly by a crafty presentation of Accounts and a one time capital gain….. Therefore I’m not reading too much into the jump in Net Sales in FY 12 to over Rs 1000 crs from just under Rs 800 crs in FY 11

Let’s give some credit to the MD,Abhaya Kumar ~he has influenced the Board to raise the Dividend Level to Rs 2.40 per share of Rs 2 => 120 % (100 Interim and 20 Final) …but this has not impressed the Markets as the Drop in Share Price from a High of Rs 137 end of last week to Rs 115 currently has been as Dramatic as the Rise !…My sense is that Shasun’s Share Price will continue to seek lower levels and fall sub Rs 100

So Rohit,this should answer your question whether to take further exposure for the long term…I reiterate….Clearly in my view,No !…and assuming you already hold some exposure,as you have stated ‘further’,It would be prudent to exit and book Profit in this fast run up that is already reversing !

Rohit ,the risks of further exposure cannot be understated even as MD boasts of achieving a Rs 2000 crs turnover by 2015 and a Billion Dollars by 2020 ~ and Capex of Rs 250 crs ~ and great expectations from the UK Subsidiary

http://www.business-standard.com/india/news/shasun-pharma-targets-rs-2000-cr-turnover-in-3-yrs/471789/ 

In my View,Shasun’s  a case of Market running it away ahead of Fundamentals

Cheers ! 

7 thoughts on “Rohit has inquired ~ Shasun Pharma @ Rs 115 ~ Now in Reverse Gear from a Meteoric Rise inside Months ~ Prudent to Exit and Book Profits in this Fun Run

  1. Hi gaurav,
    I am regular reader of your blog. Its really informative and great to read. Being a long term investor, I want to buy few promising small and mid caps for long term (2~3 yrs). Pls suggest. i invest in equities myself, based on my research and stockpicking.

  2. Dear Sir, Thank you very much for your views on Shasun. Sometimes we tend to overlook the microscopic details of the Company before investing. Thank you for this great piece of information. It was enlightening also. Regards

  3. I was looking at more info after seeing the BUY recomendation in Businessline today. The write up talked of valuation of 4.6 PE fornext year. Which workd out to 25 EPS. It also tallies with the interveiew in CNBC whae the MD talks of 25% growth in EPS.
    Your write up indicating the true EPS for the current year is only about 10.
    I did not find any info on why there was such big income tax reversal. What will the tax % for next year? I went through the Analysts presentation on the compan website ( missing in BSE site) and find they talk of 20% growth in top line and maintaing an EBIDTA of 15%. Some simple calcuatiions made by me assuing, a forex loss of 5 cr and at least 20% income tax, the EPS for 12-13 works out to me as about 15 only.
    If the growth trend is maintianed EPS will grow faster in 13-14, as there will no forex loss ( all contrats expiring by Oct 2012).
    On the whole it looks to me to be a good gtowthstock to be in. But as you suggested the current trend is down and one can buy after the trend reversal or consolidation .
    Kindly let me have your views.

  4. Rao Bellam,

    I’m impressed with your response…but not easily impressed with Shasun…should one shun Shasun at Rs 115 !?…I stop short of suggesting this….Many see a promising Future and not just Future Promises….I need to see how FY 13 plays out for them as I need to be reassured the recent share price surge was not a ‘rouge’ one orchestrated for a purpose….It dropped to Rs 106 last week and as markets recovered it has since regained Rs 115 levels at which I had blogged on May 31,2012…BusinessLine may have recommended it as a ‘Buy’ now at Rs 100+…but where the hell were they in December 2011,just six months back when Shasun was just Rs 38!?…My Point is just be wary of any probable collusion of vested interests that often include Media Analysts and Advisors and Anchors….I shall keep an eye on Shasun though ~ it qualifies as a Scrip Watch for me but not a Scrip Select ~ infact I’ve advised those who have benefited from this great share price run in the last six months to realise the gain rather than leave it notional…in my view it would be prudent action as Profitability is supported by Tax Credits,one off capital Gains and Capitalisation of FX loss…and I reiterate Rao,was impressed by your response…Cheers,Gaurav

  5. Thanks for you views. Yes it is in my watch only to be acted upon when the trend reverses and also how the next quarter fares

  6. Dear Gaurav, Could you please share your valuable view on Bhoruka Aluminium and its prospects after YKK buyout.

    1. Dear Riyaz,

      As requested Posted my views on Bhoruka Aluminium on the blog a few days ago ~ was a bit alarmed at huge Inventory and Receivables write off because of reasons of ‘valuation errors in previous years’ and ‘not receivable on reconciliation’ respectively without any mention of this by Auditors

      Cheers,

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