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    Stock queries: Aurobindo Pharma fairly priced, hold on to Lupin

    Synopsis

    G Chokkalingam, Founder, Equinomics Research & Advisory, answers your stock queries. Check out

    ET Bureau
    I have 1,000 shares of Spentex Industries at Rs 39.50 and 350 shares of UB Holding at Rs 350. Please advise —JAYANT BASU

    Spentex Industries is another speculative stock — it is a sick company, making losses for the fifth year in a row and has a net worth of negative Rs 277 crore as of March 31, 2017. Sitting on debt and other current liabilities of around Rs 600 crore, which is almost equal to annualised revenue of current year. Fundamentally Spentex is not worth holding. UB Holding stock is suspended from the exchanges, nothing can be done to retrieve your capital in the short to medium terms. However, UB Holding still holds (as of September 30, 2017) Rs 4,300 crore worth of shares in United Breweries, MCF and United Sprits, while its debt and other liabilities stand at around Rs 3,100 crore (as of March 31, 2016). Hence, the valuation gap is around Rs 1,200 crore, which is 12 times its market cap of last trading day. Therefore, there is a remote chance of getting multiple returns from the last trading price (around Rs 15) provided its assets are not used to settle the liabilities of the entire UB Group.

    I have 30 shares of Aurobindo Pharma at Rs 711 each and 15 shares of Lupin at Rs 855 each. Please suggest me what to do?
    —RUBAL BANSAL
    I believe that at current price Aurobindo Pharma is fairly priced considering few balance sheet data as of September 30, 2017. On the standalone basis, its inventory and receivables stand at 74% of annualised revenues. On the consolidated basis, the sum of inventories, receivables and Other current assets account for 59% of annualised sales. Sell the stock if it rises 5% to 10% from the current level. I believe that Lupin stock has been beaten down more than what it deserves. Historically most major pharmaceutical plants, barring a couple of plants, got back their normal status from the US regulator in a span of 18 to 24 months. The stock has fallen over 60% from its historical peak and recently promoters also bought some quantity of the stock from the markets. These facts give some comfort on the current valuation of Lupin and hence, please hold it.

    I have 5,000 shares of Greaves Cotton. Should I add, hold or sellRs I purchased them for 2-3 years in 2016-017. Please advise. —CHETAN CHHEDA
    Please hold Greaves Cotton with a target price of around Rs 136 as after recent steep fall in stock price, it trades at quite an attractive valuation of around 15 times one-year forward earnings.

    I own 3,500 shares of Shilpi Cables at Rs 20 which I can hold for 5 years or more. What do you suggestRs — RAJNEESH AGGARWAL
    Investors can hold only deep value or consistent growth stocks for five years for them to successfully play out in the long run to create a lot of wealth. If we go by the balance sheet and profit & loss account of FY17, this stock may become zero in value. It has published revised March 2017 quarter results only a week back. As of March 31, 2017, its total debt and other liabilities (around Rs 3,000 crore) are about 150% and receivables and inventories are 100% of annualised consolidated revenues. While March 2017 quarterly consolidated revenue is around Rs 500 crore, its “consumption and purchase of stocks in trade” is over Rs 700 crore and “other expenses” is Rs 700 crore! Hold it only if you hope for any speculative recovery.

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