This article provides a fundamental analysis of Suven Life Sciences Ltd and Orbit Exports Ltd.
In order to benefit the maximum from this article, an investor should focus more on the process of analysis instead of looking for good or bad aspects of the company. She should learn the interpretation of different types of data and transactions and pay attention to the parts of annual reports etc used to get the information. This will help her in improving her stock analysis skills.
Suven Life Sciences Ltd & Orbit Exports Ltd Research Report by Reader
Q: I have invested in Suven Life Sciences Ltd and Orbit Exports Ltd, since a year. Reasons for selecting these stocks were:
- The stocks were available at reasonably cheap PE ratio with high ROE and ROCE ratios.
- Suven Life Sciences Ltd is a zero debt company and Orbit Exports Ltd has comfortable debt levels.
- Both companies are with high promoter holding,
- Major revenue is from export market, with India being an emerging market, rupee devaluation of average 2-3% annually is certain.
Suven Life Sciences Ltd as well as Orbit Exports Ltd have given 300%+ returns in 2014/15. At present price and valuation, what are the prospects Suven Life Sciences Ltd and Orbit Exports Ltd?
Dr Vijay Malik’s Response – Suven Life Sciences Ltd
Thanks for writing to me!
Financial Analysis of Suven Life Sciences Ltd:
Sales growth of Suven Life Sciences Ltd has suddenly shot up since FY2010 with remarkable improvement in profitability. Both OPM and NPM have shown significant improvement over this period. An investor must study the reasons for this phenomenal performance of sales and profitability growth before relying on the reported numbers.
Tax rate has been quite fluctuating over the years. An investor should analyse various tax incentives Suven Life Sciences Ltd has been getting in detail before taking any investment decision about it.
Suven Life Sciences Ltd has been able to convert its profits into cash and thereby able to fund its expansion by a mix of debt and shareholders’ funds. In recent years, Suven Life Sciences Ltd has been able to reduce debt as well.
Overall, Suven Life Sciences Ltd seems to have revived its business since FY2010 and showing good performance on almost all parameters. However, this fact seems to have been recognized by markets as well.
Margin of Safety in the market price of Suven Life Sciences Ltd:
Suven Life Sciences Ltd is currently available at a P/E ratio of about 29, which reflects that it is no longer a hidden value stock. This P/E ratio does not provide any margin of safety to the investor, as described by Benjamin Graham in his book The Intelligent Investor.
However, we recommend that an investor may read the following articles to assess the PE ratio to be paid for any stock, takes into account the strength of the business model of the company as well. The strength in the business model of any company is measured by way of its self-sustainable growth rate and the free cash flow generating the ability of the company.
In the absence of any strength in the business model of the company, a low PE ratio of the company’s stock may be signs of a value trap where instead of being a bargain; the low valuation of the stock price may represent the poor business dynamics of the company.
- 3 Principles to Decide the Ideal P/E Ratio of a Stock for Value Investors
- How to Earn High Returns at Low Risk – Invest in Low P/E Stocks
- Hidden Risk of Investing in High P/E Stocks
These are my views about Suven Life Sciences Ltd. Financial numbers are always open to different interpretations; therefore, any investor should conduct her own due diligence including assessment of tax incentives, before taking any investment decision related to Suven Life Sciences Ltd.
Dr Vijay Malik’s Response – Orbit Exports Ltd
Financial Analysis of Orbit Exports Ltd:
Orbit Exports Ltd has been showing good growth rate of sales along with improved profitability since FY2009. However, this growth seems to have come at the cost of operating efficiency as the operating efficiency parameters like fixed asset turnover as well as receivables days have been deteriorating over the years.
Orbit Exports Ltd is not able to convert its profits into cash, as cumulative CFO of last 10 years is less than cumulative PAT.
This inability of conversion of profits into cash has led to Orbit Exports Ltd relying on debt to fund its cash requirements. It is reflected by increasing debt from INR 9 cr. in FY2005 to INR 45 cr. in FY2014.
Overall, Orbit Exports Ltd represents a company, which has been growing fast but has compromised on the operating efficiency parameters while chasing growth. The deteriorating operating efficiency has led to increasing debt levels.
I believe that the management of Orbit Exports Ltd needs to pull up its socks and work towards improving its operating efficiency otherwise increasing debt levels would have negative impact on profitability due to higher interest costs in future and increase the risk of bankruptcy during tough times.
Also Read: Hidden Risks of Investing in High P/E Stocks
These are my views about Orbit Exports Ltd. Any investor should conduct her own due diligence before taking any investment decision related to Orbit Exports Ltd.
You may use the following steps to analyse the company: “How to do Detailed Analysis of a Company“
Hope it helps!
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Registration status with SEBI:
I am registered with SEBI as a research analyst.
Details of financial interest in the Subject Company:
I do not own stocks of the companies mentioned above in my portfolio at the date of writing this article.