Recommendation Review: Arvind Remedies

Arvind Remedies, which was our recommendation in Issue No. 16 (dated July 28, 2013), has performed better than our expectations. Within a span of 15 days, the stock has surged by more than 15 per cent. The 13 per cent rise in the stock price on the day we wrote the article had confirmed the bullish trend that it was likely to witness. The volumes on the BSE have also risen sharply which has helped the stock show fantastic gains.

Our reason behind this call was the new manufacturing facility that the company has set up at Irungatukottai near Chennai. This facility is expected to improve the business prospectus of the company significantly going ahead. Arvind Remedies is ambitious of a US entry by getting a USFDA approval for this facility, which is likely to expand its valuations in future. The company has also been very successful in its strategies as it has seen sharp growth in revenues over the last few years. In these years, its EBITDA margins have also shown remarkable improvement, citing higher profitability.

Besides business prospectus, lower valuation was also a reason behind the recommendation. At the time of recommending the stock, it was available at a price to earnings ratio of 3.34x, while it is now available at 3.9x. It is thus one of the cheapest stocks in the pharma sector. Since it is a Small-Cap counter, we believe that it is better to take all the money off the table as our price target of Rs 36 has been achieved.