Merck - Stable Pharma Major

I have been looking at some Pharma names recently. Let me put a disclaimer upfront. I am not very good at analyzing pharma companies. I am not able to differentiate between most of the companies who sell non-patented generic drugs in India.

Having said that, the numbers for Merck looked good. Below is a glimpse.

Market Cap: Rs. 1050 Cr
Current Price: Rs. 630.00
Book Value: Rs. 291.36
Stock P/E: 13.34
Debt to equity: 0.00
Price to book value: 2.16
Promoter Holding: 51.8%

• Merck Limited was set up in India as Merck’s first Asian subsidiary in 1967. The Company operates both its pharmaceuticals & chemicals businesses in the country.

• Dec'13 (Q4) quarter net profits & EPS have gone up by 58%; Revenues are up 31.8%

• FY12 (year ending Dec) EPS is 47.2 vs 38.4 in Fy11 (Gain of 23%)

Problem Areas

• Large part of the company's revenues comes from areas under govt price control, ability to pass on input cost escalations is not there. This can severely impact margins.
• Company has a performance materials division which makes pigments and cosmetic actives, neither of which is core to the company's business.

Valuation
The company is likely to post a FY13 (Dec) EPS of close to 53-54. At 15 times, the stock can trade at around 800 levels, which is about 25% from current levels. So, not a screaming buy, but something worth looking into for stability and moderate returns over the short term.

Disclosure: I am not invested in Merck at this time. I am not yet decided whether to invest or not. Please do your own due diligence before investing.

Guru Speak: Charlie Munger

Sensex Rolling Retuns - Some observations

I was doing some data analysis on Sensex data from BSE. I have taken the Sensex value for March end (or very close to it) for every year since Sensex was constituted in 1979. It put my mind to rest on the need to keep focussed on the long term and ignore short term market gyrations.

Some interesting observations:-

1. The worst crash in Sensex came not in 2008 but in 1993 courtesy Harshad Mehta. Down 45% in 1993 vs 35% in 2009.
2. The highest return for a year has been 252% in 1992!!! Again, courtesy Harshad bhai. The man giveth and he taketh away!!!
3. So, between 1992 & 1993, investors actually did not lose a lot money if they had stayed invested. Sensex was down 10% over the 2 year period, not a catastrophe.
4. Negative returns for over rolling 5 years starts to become lower and lower and by 12 years, it becomes zero. i.e, there has been no case historically, where an investor has lost money by being invested for 12 years or more.
5. For a period of 3 years or more, the median return is relatively good - 14% or more.

Summary of Observations
		Returns (%)
Date	Sensex	1 Year	3 Years	5 Years	7 Years	10 Years	12 Years	15 Years
Apr-79	124
Apr-80	129	3.92
Apr-81	173	34.47
Apr-82	221	27.34	21.18
Apr-83	213	-3.76	18.12
Apr-84	247	16.06	12.46	14.73
Apr-85	353	43.05	16.91	22.30
Apr-86	582	64.91	39.90	27.40	24.70
Apr-87	524	-9.92	28.56	18.87	22.18
Mar-88	398	-24.03	4.11	13.38	12.61
Apr-89	724	81.71	7.53	24.01	18.48	19.28
Apr-90	783	8.16	14.30	17.27	20.47	19.76
Apr-91	1203	53.63	44.54	15.62	25.39	21.37	20.83
Apr-92	4238	252.34	80.24	51.88	42.63	34.37	33.78
Apr-93	2311	-45.46	43.45	42.14	21.77	26.95	24.08
Mar-94	3779	63.49	46.46	39.17	32.60	31.37	26.70	25.57
Apr-95	3317	-12.23	-7.85	33.47	35.36	25.11	25.73	24.17
Apr-96	3418	3.04	13.92	23.23	24.82	19.36	24.49	21.98
Apr-97	3558	4.10	-1.99	-3.44	24.14	21.10	21.23	20.35
Apr-98	4072	14.46	7.08	11.99	19.03	26.17	17.60	21.75
Apr-99	3686	-9.47	2.55	-0.50	-1.97	17.68	17.65	19.75
Apr-00	5053	37.07	12.41	8.79	11.82	20.50	23.58	19.41
Apr-01	3605	-28.66	-3.98	1.07	-0.67	11.60	14.32	12.92
Apr-02	3463	-3.94	-2.06	-0.54	0.62	-2.00	13.19	13.41
Apr-03	3151	-9.00	-14.56	-5.00	-1.15	3.15	8.36	14.78
Apr-04	5788	83.68	17.10	9.44	7.20	4.36	2.63	14.87
Apr-05	6605	14.11	24.02	5.50	7.15	7.13	9.14	15.28
Apr-06	11564	75.08	54.25	26.25	17.74	12.96	9.77	16.29
Apr-07	12625	9.17	29.69	29.52	13.98	13.50	11.78	7.55
Apr-08	15833	25.41	33.83	38.11	23.54	14.54	13.63	13.69
Apr-09	10349	-34.64	-3.63	12.32	16.93	10.87	9.31	6.95
Apr-10	17693	70.96	11.91	21.78	27.95	13.35	13.02	11.81
Apr-11	19420	9.77	7.05	10.92	18.88	18.34	14.85	12.28
Apr-12	17597	-9.39	19.36	6.87	15.03	17.65	10.96	11.25
Mar-13	19570	11.21	3.42	4.33	7.81	20.04	15.14	11.03
Yearly Rolling Returns		34	32	30	28	25	23	20
Negative Returns		11	6	4	3	1	0	0
Summary since 03 Apr 1979
	1 Year	3 Years	5 Years	7 Years	10 Years	12 Years	15 Years
Yearly Rolling Return Observations	34	32	30	28	25	23	20
Negative Return Observations	11	6	4	3	1	0	0
Loss Probability (%)	32	19	13	11	4	NIL	NIL
Median Return (%)	10	14	15	19	18	15	15
Average Return (%)	24	18	17	17	17	17	16
Max Return (%)	252	80	52	43	34	34	26
Minimum Return (%)	-45	-15	-5	-2	-2	3	7
Standard Deviation (%)	53	20	14	11	9	7	5