NTPC is a good example of how a relative bet made in a bubble phase can end up destroying value
Against this backdrop we took a call to invest in Cadila. The stock was an under performer in 2007 given the general disinterest in the pharma sector and more importantly the company was manufacturing a product that faced a threat of premature generic launches. The company’s joint venture manufactured the key starting material (KSM) for a patented product, Pantoprazole, which accounted for approximately 20% of the company’s profit. As a result, there were concerns surrounding the outlook for the stock. Rupee appreciation was also another factor which majorly impacted the company. Barring these two factors, the company was sound. It was the fourth largest pharmaceutical company in India, in terms of revenue, with approximately 3.5% market share.
In March 2007, we bought the stock [which was trading between #300 and #320 (adjusted price was #42-43)]. But as expected, the company’s profit growth slumped 9% in FY08 compared with 58% growth the previous year.
What gave investors confidence to stick was the management’s constant reassurance that they were working towards offsetting this problem by new product launches. However, there was no fixed time-frame for the resolution.
This story is from the September 29, 2017 edition of Outlook Business.
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This story is from the September 29, 2017 edition of Outlook Business.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
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