Best stocks to invest in 2020 (Chemical & Pharma)

Articles > Submitted by raja on 4/16/2020 | Views: 851

Based on strict parameters related with financial numbers, management and future potentials, below are some of the best stocks/shares to invest in 2020 in India. In this post, we have covered Pharma and Retail sector.

Table of Contents

    Best stocks to invest in 2020

    The COVID-19 issue has given a lot of push for Pharma sector in India. Many countries are trying to minimize the dependencies on China for obvious reason and a lot of focus are on India. Below are some of the Pharma companies that are best for investment for long term according to me. I have selected them based on my criteria to filter companies for investment.

    These filters ensures that company have 

    1. No corporate governance issue
    2. High promoters holding
    3. Preferably foreign promoters holding or high % of FII holding
    4. Nil or very less debt
    5. Dividend paying company
    6. > 20% RoCE, the higher, the better
    7. No pledge of promoters shares
    8. Comparatively Less equity capital
    9. Low equity capital
    10. Consistent EPS growth
    11. Consistent cash flow
    12. Consistent tax payer

    Of course, long runway of growth are also important. However, if a company fits into above criteria, we can assume that promoters are dynamic and visionary enough to take care of remaining things. Below companies fits into my criteria for investment.

    Chemical sector

    The chemical sector comprises the companies that produce industrial chemicals that are generally used as raw materials into various industries such as pharma, agriculture, FMCG, FMEG companies, capital goods etc. India ranks 6th in the world in chemicals sales and this number is improve drastically due to corona crisis and shifting focus to India by many countries.

    GMM Pfaudler Ltd.

    GMM Pfaudler is leading supplier of engineered equipment and systems for critical application in global chemical and pharaceutical companies. This company is going to be very big beneficiaries of Pharma and Chemical companies capex. Its products and services  includes Glass Lined Equipments, Filtration & Drying, Mixing Systems, Engineered Systems, Heavy Engineering, Acid Recovery.

    Price 3422 Face value 2
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    75%
    Yes (50.44%)
    P/E 68.68 Dividend yield 0.13%
    Pledged shares No Debt to Equity 0.08
    RoCE 28.72% PEG ratio 3.26
    Cash flow 11cr in 2008 to 68cr in 2018 Equity capital 3 cr.
    EPS growth Yes, from 10.45 in 2008 to 49.82 in 2019 Deferring taxes? No

    The profit of the company has grown @16%, stock price has grown @41% in last 10 years. This is one of the best stock and a proxy to play upcoming booming Chemical and Pharma theme.

    Vinati Organics Ltd.

    Vinati Organics Limited (VOL) is a specialty chemical company, focusing on manufacturing specialty chemicals and organic intermediaries. It is world leader in production of IBB and ATBS. It is only manufacturer in the country for ATBS, TBA and TOA and largest manufacturer for IB and HPMTBE. It already a well established and respected company and have proven track records for last several decades. Many capex plans are in pipeline and several promising R&D is going on for niche products.

    Price 876 Face value 1
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    74.1%
    No
    P/E 26 Dividend yield 0.57%
    Pledged shares No Debt to Equity 0.00
    RoCE 45.83% PEG ratio 0.96
    Cash flow 12cr in 2008 to 200cr in 2018 Equity capital 10 cr.
    EPS growth Yes, from 1.5 in 2008 to 33.24 in 2019 Deferring taxes? No

    Its sales has grown @19% and stock price @36% in last 10 years. It is one of the most respected specialty chemical company in India.

    Fine Organics Industries Ltd.

    Fine Organics is the leading producer of specialty additives for foods, plastics, rubbers, paints, inks, cosmetics, coatings, textile, lubes etc.

    Price 2094 Face value 5
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    75%
    No
    P/E 40 Dividend yield 0.33%
    Pledged shares No Debt to Equity 0.22
    RoCE 43.16% PEG ratio -
    Cash flow 45cr in 2017 to 98cr in 2019 Equity capital 15 cr.
    EPS growth Yes, from 31 in 2018 to 51.23 in 2019 Deferring taxes? No

    It is newly listed company so historical data is not available, however its stock price has grown @58% in last 1 year.

    Pidilite Industries Ltd.

    This company is known for its flagship brand Fevicol. Its products portfolio contains adhesives, sealants, waterproofing solutions, construction chemicals, arts & crafts, industrials resins, polymers etc. Some of its renowned brands are Fevicol, Dr Fixit, Fevikwik, M-Seal, Fevistick etc.

    Price 1538 Face value 1
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    69.98%
    No
    P/E 63.95 Dividend yield 0.46%
    Pledged shares No Debt to Equity 0.03
    RoCE 34.86% PEG ratio

    3.97 

    Cash flow 110cr in 2008 to 846cr in 2019 Equity capital 51 cr.
    EPS growth Yes, from 3.27 in 2018 to 23.51 in 2019 Deferring taxes? No

    Its sale has grown @13% and stock price @29% in last 10 years.

    Galaxy Surfactants Ltd.

    It is world leading player in surfactants and specialty care ingrediants. It has around 200+ products. As per their website, 9/10 Indian consumers use products which have its surfactants or specialty care products atleast once in their daily routine.

     

    Price 1426 Face value 10
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    70.94%
    No
    P/E 28.65 Dividend yield 0.56%
    Pledged shares No Debt to Equity 0.18
    RoCE 30.28% PEG ratio

    1.91 

    Cash flow 76cr in 2012 to 238cr in 2019 Equity capital 35 cr.
    EPS growth Yes, from 17.87 in 2004 to 49.78 in 2019 Deferring taxes? No

    It is recently listed company, so historical data is not available however the share price has grown @41% in last 1 year.

    Pharma Sector 

    Pharma sector includes companies that manufacture and market medicines and other health care items. Indian pharma sector supplies almost 50% of global demand of varous vcaccines, 40% of generic medicine in US and 25% of all medicine in UK. This number is expected to grow many fold due to Conona crisis and countries de-risking policy on China.

    Caplin Point Laboratories Ltd.

    Caplin Point Laboratories is one of the fastest growing mid-cap pharmaceutical company, it holds 2800 product licenses and is a debt free company. Its product covers both regulated and emerging markets. It is into production, development and marketing of wide range of generic formulations and branded products.

    Price 313 Face value 2
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    69.03%
    No
    P/E 11.01 Dividend yield 0.70%
    Pledged shares No Debt to Equity 0
    RoCE 48.53% PEG ratio 0.17
    Cash flow 14cr in 2011 to 83cr in 2019 Equity capital 15.13 cr.
    EPS growth Yes, from 0.78 in 2011 to 28.49 in 2019 Deferring taxes? No

    The unique thing about this company is it exported formulations to China when most of Indian companies imported APIs. Recently it has received USFDA nod for Ropivacaine Hydrochlrolide Injection and few other injection. Its management is considered very ethical and proactive.

    Procter & Gamble Health Ltd. (PGHL)

    PGHL is one of the India's largest VMS companies manufacturing and marketing vitamins, minerals, and supplements products.(as per website)

    Price 4347 Face value 10
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    51.82%
    Yes
    P/E 45.45 Dividend yield 0.55%
    Pledged shares No Debt to Equity 0
    RoCE 78.16% PEG ratio 0.63
    Cash flow 38cr in 2007 to 54cr in 2017 Equity capital 16.6 cr.
    EPS growth Yes, from 36.05 in 2009 to 505 in 2018 Deferring taxes? No

    In the era of fast food, quick food, frozen food and adulterated food; the need of supplements has only increased. PGHL being leader in this sector with P&G as the parent will benefit this company to use P&G supply chain, off the counter sale. Constant R&D and innovation from parent P&G will help good products in pipeline.

    Abbott India Ltd.

    Abbott India Ltd is one of the leading MNC pharmaceutical company in India. It's product caters to Diabetes care, Diagnostics, Nutrition, Vision, Vascular Care, Anti-Infectives, Cardio, Hormones and various other categories.(as per website)

    Price 16981 Face value 10
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    74.99%
    Yes
    P/E 61.67 Dividend yield 0.29%
    Pledged shares No Debt to Equity 0.02
    RoCE 37.36% PEG ratio 3.35
    Cash flow 31cr in 2007 to 499cr in 2019 Equity capital 21.25 cr.
    EPS growth Yes, from 42 in 2007 to 187 in 2019 Deferring taxes? No

    Abbott India has recently unveilded Covid-19 test kit that can detect the virus in 5 minutes. Diverse range of prodcuts with innovations will help the company grow. Foreign promoters will help the company getting enough orders, quality and innovations.

    Pfizer Ltd.

    Pfizer products caters to areas like depression, cholesterol, HIV infection, erectile dysfunction, hypertension, bacterial infection etc.(as per website)

    Price 4344 Face value 10
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    63.92%
    Yes
    P/E 38.55 Dividend yield 0.52%
    Pledged shares No Debt to Equity 0
    RoCE 23.22% PEG ratio 2.26
    Cash flow 17cr in 2007 to 332cr in 2018 Equity capital 45.75 cr.
    EPS growth Yes, from 108 in 2007 to 112 in 2019 Deferring taxes? No

    This is one of the company that is not in limelight however its constant R&D and diverse product ranges ensures continuous business and innovations.

    Divi's Labs Ltd.

    Divis laboratries is engaged in API and Netraceuticals manufacturing along with contract manufacturing with 6 of the top 10 Big pharma companies. It also owns world's largest API  manufacturing facility. (as per website)

    Price 2393 Face value 2
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found Promoters holding?
    Foreign promoter?
    52%
    No
    P/E 49.62 Dividend yield 0.67%
    Pledged shares No Debt to Equity 0
    RoCE 28.51% PEG ratio 4.21
    Cash flow 292cr in 2017 to 954cr in 2019 Equity capital 53.09 cr
    EPS growth Yes, from 2.66 in 2008 to 50.96 in 2019 Deferring taxes? No

    De-risking from China is helping India and Indian API manufacturer. DIVIs, one of the largest API manufacture of the world will surely get a lot of benefit from it. This supplies APIs to top 6 pharma companies of the world, a lot of business potential and future growth are expected in years to come.

    IPCA Laboratories Ltd.

    IPCA Lab caters to APIs, Generics, Branded Formulations, and Malaria. It is one of the top exporters of APIs with nearly 25% of the turnover from APIs and most of the big countries like USA, Canada, Europe contributes to 75% of their API exports. Ipca formulation contributes to 67% of export turnover and it is India's largest formulation exporter.

    Though IPCA lab financial numbers doens't look great however Corona issue may benefit it as USFDA has made excemption to the import alert for the company's "Hydroxychloroquine Sulphate and Chloroquine Phosphate APIs" and "Hyderoxychloroquine Sulphate Tablets" due to shortage. IPCA Lab is one of the leading manufacturer of Hydroxychloroquine.

    Price 1504 Face value 2
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    46.07% (moderate)
    No
    P/E 30.71 Dividend yield 0.33%
    Pledged shares No Debt to Equity 0.13
    RoCE 16.24% PEG ratio -18.61
    Cash flow 106cr in Mar 2008 to 492cr in 2019 Equity capital 25.27 cr.
    EPS growth Yes, from 10.57 in 2008 to 48.79 in 2019 Deferring taxes? No

    Sanofi India Ltd.

    Sanofi India products caters to Diabetes, Nervous system, Infectious diseases, Multiple Sclerosis, Thrombosis, Renal Transplant, Rare diseases, Human vaccines, Biosurgery, Consuler Healthcare area. (as per website)

    Price 7971 Face value 10
    Reputed Management and Adhering to good Corporate governance Yes, no CG issue found High promoter holding
    Foreign promoter?
    60.44%
    Yes
    P/E 40.37 Dividend yield 1.33%
    Pledged shares No Debt to Equity 0
    RoCE 28.84% PEG ratio 4.49
    Cash flow 108cr in 2007 to 374cr in 2018 Equity capital 23 cr.
    EPS growth Yes, from 59 in 2007 to 179 in 2018 Deferring taxes? No

    Recently, Sanofi India and Glaxosmithkline Pharma have joined hands to develop a vaccine for COVID-19. It's products caters to various sectors and continuous R&D will ensure new products in the pipeline that will help company grow. Recently it has also declared INR 349 dividend including special dividend. Foreign parent will ensure enough demand, innovations coming in to the company.

     

    Desclaimer: Some of above names are inspired from tweets of @AnyBodyCanFly and @AmitabhJha3

    Disclaimer: Numbers are as it is taken from screener.in. One can assume human error while typing. These information has been provided for information only. It should not be treated as recommendations. These companies pass my filter criteria explained above so I like these companies and may invest in future.

    Website disclaimer: The views, opinions, investment advices (if any) expressed by author on Sharefunda.com are their own and not that of the website or its management. Users are advised to contact certified financial advisor before making investment decisions.

    Submitted by raja on Thursday, April 16, 2020

    Wait for opportunity and grab with all hands like Eagle.

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