Hello Teddies,
Zudus Wellness replaces IDFC into The Equity Desk
XI - Zydus (CMP Rs 382) is a classic Peter Lynch spin-off,
promoted by the Cadilla groups who have had a long history of rising sales and
profitability. Zydus makes and sells Nutralite (Low cholesterol butter); Sugar
Free and EverYouth range of face wash, scrubs and other skin care products.
Stock trades at 18-20 times Fy11; Market Cap Rs 1560 crores; debt free with
free cash flow; Top line should grow at more then 30% and the bottom line at
more then that because of the high operating leverage resulting from 65% gross
margin. Company is a dominant leader in all its products. In Sugar free for
instance it has 82% of the market share and similarly it has a dominant share
in all the other product lines. Company is aggressively contemplating extension
of its different brands and should generate good returns.
The installation of its new Sikkim plant later this year will
bring down the tax incidence of the company from the full rate to near about
MAT.
This is a good play on the urban consumer focused on health
and skincare - suffering from cardiovascular disease or diabetes. Additionally
it also targets the consumer who believes in the adage “Prevention is better
then cure”.
This business earns a RoE of more then 50% and works on
negative working capital while the stock is not cheap who said good things ever
came cheap?
The General Story: The last quarter
has been quite good for the small and mid cap companies. Analysts cal this the
catch up move but the fact is mid and small caps always tend to out perform the
larger capitalized companies so whether the smaller companies are catching up
to their old trend or to their larger capitalized counterparts needs no debate.
The analysts who are short of words say it is now a stock picker’s market. Now when was this ever not
a stock picker’s market? If the marker were not a stock picker’s market
then the Efficient market hypothesis would have been in vogue and Index
investing the most desired and profitable route so for anyone who is suggesting
a stock picker’s market and did not suggest index investing earlier is actually
displaying his incompetence rather then his skill. The market was, is and will
remain to be a stock picker’s market if anyone thinks differently he can pick
up a book on the efficient market hypothesis and invest in index funds.
The stupidity that goes along with predicting markets
quarter wise has been clearly exposed. No one and his brother has successfully
been able to predict markets so trying to make a case for a sector rotational
strategy based on spring, summer, autumn and winter is a clear reflection of a
confused state of mind.
Good businesses run by able and honest managers bought at
reasonable (not necessarily cheap) valuations will outperform mediocre
businesses.
The Ted XI Report Card is tabled below:
Regards,
Basant Maheshwari
Edited by basant - 05/Jul/2010 at 8:05pm