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Time To Buy Quality Stocks After 15% Plunge In Sensex, Few Shares To Buy Now

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The Sensex and the Nifty have plunged in trade and the markets are down 15% from highs. Another 5% knock and the markets would be in bear territory. Here are some stocks to buy now that have the potential to generate good returns in the portfolio.

 

Ajanta Pharma

Ajanta Pharma

This stock is on the buy list of Anand Rathi. The firm remains optimistic on the stock post its quarterly numbers. The company's gross margin slid 531bps to 72.5% y/y due to higher raw material prices and a one-time impact (1.5% of sales due to flu-related products written back, and 1.5% more due to price erosion in the US).

The company also saw a healthy 12% India sales growth is primarily attributable to better traction in its chronic and sub-chronic therapies. Launches were 16 in FY22 (including four FtF). Anand Rathi believes the launches, efficient MR productivity and price hikes in Apr'22 would drive a 15% revenue CAGR in its India business over FY22-24.

However, the firm does acknowledge that the US business remained muted. On higher price erosion (18%) and fewer-than-expected launches (on lower filings), its US sales declined 3% to Rs1.7bn. It plans to file 10-12 products in FY23. We anticipate a 14% CAGR over FY22-24 supported by the launches.

Ajanta Pharma: Buy the stock with a price target of Rs 2378
 

Ajanta Pharma: Buy the stock with a price target of Rs 2378

Anand Rathi has set a price target of Rs 2378 on the shares of Ajanta Pharma, which were last seen trading at Rs 1650 on the NSE.

According to the firm, with more price erosion in the US, higher raw material prices and other expenses normalising to pre-Covid levels, the FY22 EBITDA margin declined 674bps to 27.8%. FY23 margins are expected to remain at 28% and expand gradually with the improving branded generic business.

Anand Rathi believes that at the current market price of Rs 1,688, the stock trades at 20x/16x FY23e/FY24e EPS. The firm maintains a Buy with a lower target of Rs 2,378 (earlier Rs 2,730).

Suven’s pharma CDMO sales

Suven’s pharma CDMO sales

Another pharma stock that Anand Rathi is bullish on is the stock of Suven Pharma. According to the

firm traction in CDMO continues. The Q4 order for Covid-19 drugs was not as good as anticipated. For pharma CDMO, the company has five projects in phase-3 and five molecules commercialised. Management expects one product to be commercialised by end-FY23. Till then, core molecules are expected to grow 10-15%. On CDMO specialty chemicals, good traction was seen since a molecule was added (in Q4 FY21). On the high base, growth would be flat till a molecule is in the development stage and likely to be clinical by FY24.

Suven has launched eight products so far in the US and has eight pending approvals. It plans to file 7-8 ANDAs in FY23 from the formulations plant. The required capacities to back this business will be aided by the newly acquired SEZ unit from Casper Pharma (two filed). Management will file 15 ANDAs in FY23 from Casper's site on approvals subject to the US FDA's awaited inspection. With the formulations business scaling up, management expects EBITDA margins of ~40% ahead.

According to Anand Rathi, the long-term guidance of 10-15% revenue growth, 40% EBITDA margins and 25% tax rate maintained. The firm believes that at the current market price of Rs 534, the stock trades at 29x/25x FY23e/FY24e EPS of Rs18/Rs21. "We maintain our Buy rating on it with a revised target price of Rs 627," the brokerage has said. According to the firm, the key risks would remain currency fluctuations, delay in orders.

Mahanagar Gas: Inexpensive valuations buy the stock for target of Rs 930

Mahanagar Gas: Inexpensive valuations buy the stock for target of Rs 930

The stock has fallen dramatically over the last few months on worries over rising gas prices. The stock is now on the buy recommendations of Sharekhan.

According to Sharekhan, for Q4FY2022, Mahanagar Gas reported operating net profits of Rs. 215 crore/Rs. 132 crore, up 109%/132% q-o-q, which was 42%/44% above our estimate of Rs. 151 crore/Rs. 91 crore, primarily led by sharp beat in EBITDA margin at Rs. 7.6/scm (up 122.6% q-o-q), offsetting the miss in volume at 3.2 mmscmd (down 4% q-o-q). The sharp beat in EBITDA margin was on account of strong recovery in gross margin by 53.9% q-o-q to Rs. 13.3/scm (30% above our estimate), led by steep CNG/D-PNG price hike, better sourcing of term LNG for I&C, and slight premium to alternative fuels for I&C price at Rs. 47/Rs. 56 per scm. Volumes disappointed with a 4.8%/4.6% q-o-q decline in CNG/ industrial-commercial PNG volume to 2.3 mmscmd/0.4 mmscmd due to impact of rise in COVID-19 cases over January-February 2022, while D-PNG volume remained flat q-o-q at 0.5 mmscmd.

The firm maintains its Buy rating on Mahanagar Gas with a revised price target of Rs. 930, noting its inexpensive valuation of 9.8x its FY2024E EPS (at a discount of 34% to three-year average PE of 15x), given the steep correction in the stock prices from 52-week high level.

Story first published: Thursday, May 12, 2022, 11:54 [IST]
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