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CNBC-TV18 Your Stocks: 'I have Future Consumer at Rs 65 since a year, what should I do?

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Your Stocks is a daily show where market experts answer your specific stock related queries.

Your Stocks is a daily show on CNBC-TV18 where market experts answer your specific stock related queries.
In August 8 edition of Your Stocks, Mayuresh Joshi of Angel Broking and Rajat Bose of rajatkbose.com, answer your queries on investments in the stock market.

Q: Anjali Patil writes to us from Mumbai. She holds 1,000 shares of NMDC at Rs 137 since 2.5 years. She is a long-term investor and wants to know whether to hold or sell.
Joshi: I think the lumpy nature in terms of reported volumes is something that has played out on the stock price. However, a large element is in terms of the expectations of volume growth going forward. So, even if one presumes the sales volume to grow between eight and nine percent odd, we are looking at volumes of 40 million tonne for FY19 and maybe 41 million tonne for FY20. They have recently hiked prices, both for lumps as well as fines. So, I think that incrementally will add on to their earnings before interest, tax, depreciation and amortisation (EBITDA) and the reported EBITDA per tonne.
Again, their mine life and their integration that they are doing, I think that should also abet the strong earnings growth that the company has. Again, I think the sweetener is obviously the dividend yield that it gives out. So I think it might be lumpy for a few more quarters, but as things start stabilising in terms of volume growth, getting reflected in terms of the margins and the bottomline, I think the earnings estimate should also improve for this stock. So, clear hold from my side.

Q: Ravindra Ponkshe writes to us from Mumbai. He holds 200 shares of Lupin at Rs 656 since two years. He is a long-term investor and wants to know whether to hold or sell.
Joshi: If it is a strategy, which he is probably looking at having a few pharmaceutical stocks as a defensive play within his overall portfolio, I think Lupin has disappointed in terms of reported numbers which just came through. The competition in terms of US pricing, the competition in Methergine, the competition that they witnessed in Glumetza and Fortamet continued in terms of the revenue growth. The margins again were disappointing, so the management commentary in terms of what actually disappointed on the EBITDA front will be very interesting.
However, I think they got a very strong pipeline. So, the pipeline that they have got along with the Enbrel biosimilar, which they are working on with Mylan, I think that should probably have a huge earnings potential from the next financial year. So, this year probably will be a consolidation as the management had put forth. However, any updates in terms of Goa and the Indore plants over the next few quarters can have significant earnings traction because of the strong ANDA and the First-to-Files (FTF) that they probably possess. So, if the investor probably has a longer view and the patience to hold on, I think he should hold on to the stock.

Q: Ravi Kokate writes to us from Mumbai. He holds 100 shares of Cipla at Rs 216 since five years. He is a long-term investor and wants to know whether to hold or sell.
Bose: I would say that pharmaceutical stocks won’t revisit their earlier lows. The lows of around Rs 510 or so for Cipla is not really likely or for that matter Lupin is not going to fall below Rs 800; that is what I tend to think.
For Lupin, I would say that around Rs 880, its 200 day exponential moving average is located. Unless that is taken out decisively, this kind of whipsaws and disappointments and then it will come down, that will continue to happen. Immediately, if it stays below Rs 849, then you can expect that Lupin may actually test Rs 820-810. So my suggestion for the earlier caller would be that you put a stop loss below Rs 800 on closing price basis and continue to carry on.
For this caller who is making a query on Cipla, I would say that Rs 579 is 200 day moving average and I would say that it would be better that if you continue to hold on, because it's in a consolidation mode, Cipla and it is not, and especially the rider that he added, that whether to jump onto HDFC AMC or D-Mart, both the stocks are from a valuation point of view, I would say that they are pretty much expensive and there is too much of positive exuberance going on there. Instead of that, if he is patient enough, Cipla, Lupin, kind of stocks would be giving good returns over a period of time, because pharmaceuticals happen to be the only sector that is showing long term bottoming out formation.

Q: Rukmini Rathore writes to us from Jaipur. She holds 26,000 shares of Future Consumer at Rs 65 since a year. She wants to know the future of the stock for short and medium term.
Joshi: I think the losses they have posted is more or less, because of what happens in terms of the lower margin fruits and vegetable business for example. I have not gone into the detail of the numbers, but a large element in terms of how their revenues have probably grown over the past few years and the expectations of a revenue compound annual growth rate (CAGR) in excess of 35-36 percent odd, I think that itself should ensure that the topline is probably far more secured.
When you are talking about margins, they had reported an EBITDA margin of 1.8 percent for FY18. So any improvement on that front will clearly play out on the bottom line and will get the company out of losses that it posts. However, again I think the view again has to be a little bit more futuristic for a Future Consumer. So if the investor has a patience over the next two to three year with the expectations that they might probably start reporting profits, I think then you are probably looking at the price earnings growth to come back to the stock.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
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