08/11/2018
We are recommending 2 stocks i.e Laurus Labs and Cords Cables which have recently corrected post the carnage in mid and small caps. We would urge investors to gradually deploy funds in these two stocks with 1/4th quantity to be added. We repeat 1/4th quantity. We believe that this a sell on rally market and these stocks have low trading volumes so any further fall in the markets will result in fall in stock prices as fundamentals will take a back seat at least temporarily. The fundamentals of these companies are good but we maintain a cautious stance on the market.
Laurus Labs - CMP – Rs.365.10
Investment Rationale
Laurus is a leading research and development (“R&D”) driven pharmaceutical company in India, with a leadership position in generic active pharmaceutical ingredients (“APIs”) for select, high-growth therapeutic areas of antiretrovirals (“ARVs”) and Hepatitis C.
Laurus also manufactures APIs in oncology and other therapeutic areas. Laurus’s strategic and early investments in R&D and manufacturing infrastructure have enabled them to become one of the leading suppliers of APIs in the ARV therapeutic area to multi-national pharmaceutical formulation companies which cater to the large and fast-growing “donor-funded access-to medicines markets” of Sub-Saharan Africa, South-East Asia and Latin America.
Laurus “research-first” approach has been critical to their success and a differentiating factor from their competitors. Laurus is focused on undertaking dedicated R&D in their existing products and in areas where there is significant growth potential. Laurus systematic approach to selection of molecules, involves evaluation of technical and commercial feasibility data, and customer feedback, is evident from their high proportion of active DMFs, commercialization.
Laurus owns 32 patents and had 150 pending patent applications, in several countries, and have commercialized 59 products since inception.
Laurus is further building on their API strengths to forward integrate and become a leading FDF player in the global generic pharmaceutical market.
Laurus currently develops and manufactures specialty ingredients for use in nutraceutical, dietary supplements and cosmeceutical products.Laurus strong process chemistry skills to strengthen their presence in the nutraceutical and cosmeceuticals sectors in the manufacture of nature identical substances. Laurus current portfolios of products are used as anti-oxidants, skin brighteners and UV protection agents. Laurus is also developing capabilities for botanical extraction and purification, to capture the growing market of natural ingredients.
Key Risks to our recommendation: high dependence on API, high dependence on ARV and Hep-C and client concentration risk are factors which can adversely impact the company
Cords Cable Industries – CMP – Rs. 67
Investment Rationale
Cords Cable Industries is one of the largest manufacturers of Control and Instrumentation Cables (C&I) in India, supplying to various end users industries like Metros, Refineries, Capital Goods and Real Estate sectors, Power, Airports, Railways etc.
Cords Cable Industries has manufacturing capacity of ~65,000 KM per annum situated at Bhiwadi and Bhiwadi Ext. (Kaharani). The company’s 90% of the revenues comes from C&I Cables, while balance is from Power Cables, which is manufactured for the requirements of its C&I cable customers.
Cords Cable Industries is one of the most diversified players, with presence across all the sub- segments of the C&I Cables in the domestic market. Though other companies like KEI Industries are present in the C&I Cables, Cords Cable has advantage of being a specialized player in the C&I Cables.
Cords Cable is an associated and approved vendor with all the Metros in India and has been supplying to the Metro projects in Lucknow, Chennai, Delhi, Hyderabad, Kochi, Bangalore, Mumbai, Jaipur etc. Due to the large opportunities in the signaling cables, special cables being sold to the Metro, Cords Cable will benefit from Governments’ increased thrust on the Metro projects in various cities.
Cords Cable Industries has highly diversified business model, both in terms of client concentration as well as the sectors it services. No client accounts for more than 20-22% of the revenues. Further, it caters to a diverse set of industries ranging from Metros, Capital Goods to Refineries as well as end user companies like Berger Paints, Asian Paints, Biocon etc which insulates it from any slowdown in the end user industry.
The company has a manufacturing facility at Bhiwadi with an annual capacity of 65,000 KM per annum. However, operational capacity is ~42000 KM per annum as the company can optimally produce ~60-70% of the theoretical capacity, due to varied specifications of different clients. Currently, the company is operating at a capacity utilization of ~60% of the practical manufacturing capacity. With surge in demand from various sectors, the company management expects the sales volumes to grow at a CAGR ~20% over the next two years.
Key Risks to our recommendation: Any steep increase in raw material cost and competition from peer companies.
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