In this edition, we have reviewed JK Cements Ltd. and Torrent Pharmaceuticals Ltd. We suggest our reader-investors to HOLD in JK Cements Ltd. and EXIT in Torrent Pharmaceuticals Ltd.
We had recommended JK Cements Ltd. in Volume 36, Issue No. 11, dated April 25, 2021 to May 09, 2021, under the ‘Cover Story’ segment. The recommended price for the stock was Rs2,877.10. We had recommended the stock on the basis of better-than-industry volumes, prudent and timely expansion strategy, improving market condition and a decent price environment. JK Cements is one of the largest cement players in North India. It manufactures grey cement, white cement and white cement-based wall putty. The consolidated quarterly financial performance of the company indicates that net sales and other operating income was recorded at Rs1,714.15 crore in Q1FY22 as compared to Rs1,004.85 crore in Q1FY21, leading to a rise of 70.59 per cent. The operating profited ascended attractively by 84.88 per cent from Rs232.71 crore in Q1FY21 to Rs430.24 crore in Q1FY22. The net profit for the quarter registered at Rs190.09 crore in Q1FY22 as compared to net profit of Rs49.95 crore in Q1FY21, pointing to a massive rise. On the annual front, the net sales and operating income zoomed by 13.87 per cent from Rs5101.64 crore in FY20 to Rs6,606.10 crore in FY21. The operating profit of Rs1,298.77 crore of FY20 gained 27.17 per cent to reach operating profit of Rs1,651.64 crore in FY21. FY21 reported a net profit of Rs703.10 crore as compared to net profit of Rs483.39 crore reported in FY20, with gains of 45.45 per cent on a YoY basis.
The company has a target of up to 10 per cent growth in its revenue this fiscal, helped by the government’s push for infrastructure, a good monsoon and pent-up demand for the sector. Despite a deviation in sales in the April-June 2021 quarter due to pandemic-led disruptions, the company is optimistic and expects its growth momentum to continue in 2021-22 also, recovering quickly in the rest of nine months led by decent growth. Additionally, the company expects its expansion project at Panna, Madhya Pradesh to be completed in the next financial year post which the manufac-turing capacity will advance to nearly 20 million tonnes per annum (MTPA) from the current installed capacity of 14.7 MTPA. Hence, we recommend HOLD.
We had recommended Torrent Pharmaceuticals Ltd. in Volume 36, Issue No. 11, dated April 25, 2021 to May 09, 2021 under the ‘Choice Scrip’ segment. The recommended price for the stock was Rs2,604.75. We had recommended the stock on the basis of the company’s focus on product rationalisation along with consistent FCF generation and moderation in core capex. Torrent Pharmaceuticals is engaged in the research, development, manufacturing and marketing of generic pharmaceutical formulations in India, the United States, Germany, Brazil and other countries. The financial performance of the company indicates that on a consolidated quarterly basis its net sales and other operating income was recorded at Rs2,134 crore in Q1FY22 as compared to Rs2,056 crore in Q1FY21, giving a rise of 3.79 per cent. The operating profited improved by 7.82 per cent from Rs665 crore in Q1FY21 to Rs717 crore in Q1FY22. The net profit for the quarter stood at Rs330 crore in Q1FY22 as compared to net profit of Rs321 crore in Q1FY21, giving a rise of 2.8 per cent. On the annual front, its net sales and operating income increased slightly by 0.83 per cent from Rs7,939 crore in FY20 to Rs8,005 crore in FY21. The operating profit of Rs2,292 crore of FY20 improved 10.91 per cent to reach operating profit of Rs2,542 crore in FY21. FY21 reported a net profit of Rs1,252 crore as compared to net profit of Rs1,025 crore reported in FY20, with gains of 22.15 per cent on a YoY basis. The company reports that it has repaid Rs350 crore of debt in Q1FY22 from cash flows. The company’s branded business is seen to be back on track with new product launches but US’ generics growth will depend on its key facilities getting clearances from the US Food and Drug Administration (USFDA). The numbers pertaining to PAT growth, EPS growth and net sales growth were lower in FY21 as compared to FY20. Besides, the PE ratio of the stock has increased as compared to the previous fiscal, indicating a good time to book profit and exit the position. The stock is trading approximately 13 per cent higher than the recommended price. Hence, we recommend investor readers to EXIT the stock.
(Closing price as of Oct 27, 2021)