Is Novartis India stock undervalued at ₹666 per share?

Does Novartis have the potential to be in Top 5 pharma companies in India?

Novartis AG, the world's top biotech company has a market cap of $190 billion, but its India counterpart, listed on BSE is available for less than $300 million(₹1600cr).

The Indian arm had picked a fight with Government of India, leading to extended court cases, changes in management and declining sales volumes, causing the worst impact on their stock.

So the big question is;

• Does Novartis India have the vision to be worth a billion dollars by 2022?

• Has the stock been beaten down making it a value buy in India's competitive environment?

I would argue "yes"

With great IP ,stable brand like; Alcon and Sandoz and a strong balance sheet, it could be a steal.

Did you know; With a marketcap of 1600cr, Novartis India has over 700cr cash in bank. They can either continue buybacks or make an acquisition. Unfortunately I don't see them returning cash via dividends to shareholders. .

I don't intend to be a Novartis spokesman but as a value investor, I believe that Swiss multinationals are good at finding ways in creating their niche. Considering the India division is less than 1% of the group's marketcap, there's a high potential to increase this % in Asia.

Investment rationale

• Wide experience, well-developed product range and good credibility among shareholders, all for less than $300 million in one of the largest healthcare markets in the world.

• Extreme scalability for their off-the-shelf products in India make them a good value buy.

• Though the management is going through a rough patch, their ability to think long-term has never been in doubt. Also, Novartis International Group, recently appointed an Indian origin (in Feb 2018) V Narasimhan as the Group CEO. He has spoken extensively about growing their market share in India & Asia

• The stock might look slightly expensive based on EBDITA earnings but its important to note that nearly 45% of company market cap is ‘Cash in bank’ which is Low Risk or virtually cheap.

• The company has always maintained healthy margins, zero debts and an asset light business model.

• In coming years, the book value and EPS will keep increasing significantly since equity is very low.

• With significant cash reserves they are well capable of acquisitions to increase market share.

So, if everything is good, why is the stock beaten down

Many a times markets fail to identify MOATS and investors have the opportunity to grab great companies @ ridiculous prices

• Declining sales are due to the management’s decision to sell of their Animal health division. Their future strategy is to focus more on Oncology market (mainly tumors & cancer)

• the famous Novartis Vs UoI court verdict https://en.wikipedia.org/wiki/Novartis_v._Union_of_India_%26_Others

• Decrease in balance sheet health is due to 2 subsequent buybacks announced in FY17 & 18

The Big question; Can Novartis figure out to create a long term MOAT for itself in the India market.