Stock Recommendation Reviews

Colgate Palmolive (India)

Book Partial Profits

We had recommended Colgate Palmolive to our readers in the Choice Scrip section in DSIJ Vol. 27, Issue No. 2 (dated January 2-15, 2012), when it was trading at Rs 1014. Our recommendation was backed primarily by the scrip’s strong financial performance. It had posted a strong volume growth of more than 10 per cent in 13 consecutive quarters. In addition, factors like its zero debt status, the increasing market share on account of new product launches, a strong MNC parentage and a possibility of more product additions from the parent company added to the positives.

After our recommendation, the scrip is now trading at Rs 1118, providing an appreciation of 10 per cent. Its strong financial performance for the December 2011 quarter was the prime factor behind the same. For December 2011, its topline stood at Rs 690 crore and the bottomline at Rs 115.58 crore as against Rs 576.64 crore and Rs 66.24 crore respectively in December 2010.  This takes the trailing four-quarter EPS to Rs 32.07, resulting in a P/E of 34.75x. This is in line with that of its peers.

However, we recommend that our readers book partial (50 per cent) profits at the current levels as the scrip has already provided good returns even in the current uncertain market. Despite this, we feel that the dividend payment is also an additional beneficial factor that must be considered. With the Q4 FY12 results expected soon, we feel that holding the rest will be a prudent strategy.

Dena Bank

Book Profits

We had recommended Dena Bank to our readers in DSIJ Vol. 27, Issue No. 5 (dated February 13-26, 2012), when it was trading at Rs 80.50. We had recommended the scrip as it was available at a fair valuation, coupled with the expectations of a reversal in the interest rate cycle, an improvement in asset quality and the fact that the bank will receive capital from the government (LIC), which will further increase its capital adequacy ratio.

After our recommendation, the scrip went up. Through our SMS service, we had recommended that investors book profit in it at Rs 94.50. The stock is now trading at Rs 90.10. In view of the volatile market conditions, we would advise investors to book profits now in case they have not already done so.

In the December quarter of FY12, the bank’s Net Non-Performing Assets (NPAs) contracted by 16 basis points to 1.1 per cent on a YoY basis. Further, the Net Interest Margin (NIM) also increased by six basis points to 3.30 per cent on a YoY basis. Dena Bank has raised around Rs 151 crore by issuing preference shares to the LIC.

For the month of February 2012, WPI inflation increased by 40 basis points to 6.95 per cent, while the CPI increased by 118 basis points to 8.83 per cent. With this, there is a lower probability that the RBI will cut the rates in its next policy meet. We believe that one should watch out for Q4 for taking any further positions in the counter.

Torrent Pharma

Book Profits

We had recommended Torrent Pharma in DSIJ Vol. 26, Issue No. 25 (dated November 21-December 4, 2011), when it was trading at Rs 559. After seeing a downtrend in December, the scrip is now trading up by 11 per cent at Rs 623. Our reasons to recommend the counter were the consistent growth in its topline and also a better growth in its bottomline.

Torrent Pharma has consistently been a dividend paying company. The promoters have not pledged any of their shares, which indicates the confidence they have in the business. Its low debt-to-equity ratio was also a reason why we were very positive on the scrip in a high interest rate regime. In 2011, when all the indices were hammered, the counter remained very firm.

The company sells in the domestic as well as the export markets. It has products in various therapeutic segments, including specialty segments like diabetology, cardiovascular, Central Nervous System, etc. It recently launched 19 products in the gynaecology segment, and has about six products in the pipeline that are yet to be launched. Its business, which is well integrated with formulations, API and CRAMs, is also one of the reasons why we remain positive on the scrip.

For the first nine months of this fiscal, the company has reported a topline growth of 19 per cent to Rs 1946 crore, while its bottomline grew by 26 per cent to Rs 287 crore. Its EBITDA margins took a little beating due to the increase in input costs. We believe that the next quarter’s performance is already factored into the price of the stock. Hence, investors should take this opportunity to book profits at the current levels.