Equityright strongly believes that it’s your right to get the right information, through right source that rightly helps you multiply your hard-earned penny into wealth. Moreover, it is also your right to get access to the crucial updates and events that surround you and affect your lives in many different ways. That’s where Equityright establishes connect with you!
Subscribe to this blog
Follow by Email
Lasa Supergenerics - Is it a value buy?
So here is a stock which will need to almost double to reach again its all time high which means it has nearly halved in last 2 months or so.
Now, I assume, whoever is tracking Lasa Supergenerics (Lasa) knows in detail about the company as well as its parent Omkar Speciality Chemicals (OSCL) and so will not go into those details. As far as new investors are concerned, my only comment would be it is not for the light hearted.
Coming back to Lasa, what caused such a drop in the price and looking at the numbers it seems financial results of Q3 were not in line with expectations and add to that current market sentiments after imposition of LTCG tax, correction was imminent.
However, more than the current sentiments and Q3 financials, what has impacted Lasa more is its parent's performance and few things which came out in the last 2 quarter results of OSCL declared in February. Perception now being that Lasa will go the same way of its parent company (it has only being few months since Lasa demerged from OSCL). So let us see what happened in OSCL and whether it holds true for Lasa:
1. OSCL had been struggling with working capital and debt issues since last few years which led to issues in normal running of business and drastic reduction in sales.
2. Accounting practices followed by OSCL leading to write off of almost 50 Cr of R & D expenses.
Let's see how these two things affect Lasa Supergenerics.
In the con calls, Mr. Omkar has been mentioning he is managing working capital to not let it run out of control keeping it around 55 days which is ok considering small size of the company. As of now it does not seem Lasa will run into the same problems as OSCL as regards to working capital because of 2 things. One it has got working facility from Axis bank in last quarter and with rights issue expected in next 1 to 2 quarters, Lasa should have sufficient equity to drive expansion plans as well as working capital.
Write off of R & D expenses of around 50 Cr for a real dampener for OSCL and it affected Lasa as well. And with change of auditors and CFO, it added fire to fuel in dragging down Lasa's prices. One would be skeptical with such changes, but at the same time need to remember that this generally happens with a new company even though Lasa is just a demerged part of OSCL. So called CFO was not present even during 2nd quarter results con call and it was just a matter of time changes happened. So results of Lasa for 4th quarter would be awaited to see if there are any auditors qualifications, benefit of doubt needs to be given to Lasa here.
As far as write off of R & D expenses is concerned, there are every chances, Lasa followed the same accounting principles as OSCL. Infact there was a write off of 27 cr in March 2017 results which was explained as difference in fair value and book value of assets transferred to Lasa. Now the question is if the same practice was followed in FY 2018 as well after write off of 27 cr. Inspite of clarification from Mr. Omkar during concall that R & D expenses are expensed out and only equipments and some catalysts and chemicals are capitalised, it is difficult to get a correct answer here and that is what has beaten up Lasa's market cap.
But it has been beaten to such an extent, that even if we provide for 2 to 3% of top line more as expenses (total R & D expenses are around 4-5% of top line as per con call), Lasa is available at a decent valuation. With sales of 250 crores, market cap of 200 crores and its new unit just starting production which can almost double the top line, it looks a value buy. With the mood in which market is, there are every chances that it may be available at still more discount and every fall will make it more attractive. And I will repeat one thing again this is not for the light hearted.