Multibagger: This small-cap pharma stock soared over 750% in 5 years, 366% in 1 year; should you buy?

Meanwhile, the stock has also given multibagger returns in the last 3 years as well as in the last 1 year. It has rallied 436 percent in the last 3 years from ₹1,289.25 in February 2021 and 366 percent in the last 1 year from ₹1,481.15.

Just in 2024 YTD, the stock has advanced over 30 percent, hitting its record high of ₹6,914.10 in intra-day deals on February 9, 2024. With this surge, the stock has already skyrocketed over 407 percent from its 52-week low of ₹1,362.65, hit on February 13, 2023.

February is the second straight positive month. Before this, it rose over 21 percent in January 2024.

Neuland Laboratories Limited manufactures and sells active pharmaceutical ingredients (APIs) in India, Europe, the United States, and internationally. The company’s APIs are used in various therapeutic areas, including antiasthmatics, cardiovascular, antifungal, anticonvulsants, central nervous system, fluoroquinolones, antipsychotic, antibacterial, and antiparkinson. It also provides custom manufacturing solutions, as well as peptide synthesis services. Neuland Laboratories Limited was incorporated in 1984 and is headquartered in Hyderabad, India.

This notable uptrend reflects the strong market interest and positive sentiment for the stock, signaling a record-breaking performance for the company in the current market conditions. Multifold profit and buy sentiment from brokerages aided the sentiment.

The stock also witnessed an upgrade in its credit ratings recently. India Ratings and Research has upgraded its credit rating for the firm’s Bank Facilities to ‘IND A+’ with a ‘Stable’ outlook.

“The upgrade reflects the continued improvement in NLL’s business profile during FYFY23-1HFY24 due to a sustained rise in the share of high-margin custom manufacturing services (CMS) business, led by both development and commercial projects. Furthermore, Ind-Ra expects the EBITDA margin to remain healthy over the medium-to-long term, given the strong pipeline of molecules in the development (15) and commercial (19) stage,” explained the ratings agency.

Earnings

In the December quarter, the net profit of Neuland Laboratories rose 166.42 percent to ₹81.39 crore as against ₹30.55 crore during the previous quarter ended December 2022. Meanwhile, its sales rose 45.90 percent YoY to ₹392.83 crore in the quarter under review versus ₹269.25 crore during the same quarter last year.

However, as compared to the previous quarter, the revenue declined by 5.97 percent and the profit decreased by 8.8 percent.

Brokerage view

According to ICICI Direct, the stock has witnessed strong momentum with its price above short, medium, and long-term moving averages. The pharma stock also has rising net cash flow and cash from operating activity. Furthermore, it is efficient in managing assets with high TTM (trailing twelve months) EPS (earnings per share) growth.

Meanwhile, its weaknesses, as per the brokerage are –

– Promoter holding decreased by more than -2 percent QoQ

– Negative Breakdown Second Support (LTP < S2)

– Mutual funds decreased their shareholding last quarter

While small-cap stocks may attract attention due to their potential for significant returns, it’s essential to acknowledge the inherent risks associated with them. These stocks, typically characterised by their smaller market capitalisation, are known for their high volatility and speculative nature. Their unpredictable behavior makes them unsuitable for investors who prefer a more conservative investment approach. Therefore, it’s crucial for investors to proceed with caution and conduct thorough research before considering any investment in this category.

Even for those with a higher tolerance for risk, it’s prudent to exercise caution and limit the allocation of these high-risk assets to a small portion of their overall investment portfolio. Diversification remains a fundamental principle in risk management, and relying solely on a single volatile asset class can expose investors to undue uncertainties.

Given the complexities associated with such stocks, seeking professional guidance from a qualified financial advisor is paramount.

Disclaimer: This story is for educational purposes only. Please speak to an investment advisor before making any investment decisions.

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Published: 12 Feb 2024, 04:27 PM IST