Pharmaceutical Sector
Important note - Still Indian Markets are directionless and indecisive due to which any further market correction may bring some more pressure on all researched stocks mentioned in following subsections.
The market volatility situation is for short term duration and in long term the markets will recover as Indian companies are having good fundamentals and good growth prospects.
Taking into consideration current market situation it is advisable to buy stocks in steps rather than buying in bulk in single trade.
Jubilant Organosys
Returns
CMP - Rs. 116
Buying Price - Below Rs.108 (It went down till Rs.84.80)
Returns - 30 to 50%
Duration - 15 months to 3 years
Taking into consideration Rs.84.80 as buying price following are the returns
110% Target acheived in month of 19 May 2009 (Updated - 22 May 2009)
Company profile
1. Jubilant Organosys is in contract research and manufacturing
services (CRAMS).
2. Growth for the company is expected to come primarily from the
pharmaceuticals and life science products business segment
comprising CRAMS, drug discovery and development and dosage
forms.
Global Acquisition
1. The company has acquired Hollister-Steir’s USA based contract
manufacturer companies.
2. The Jubilant Organosys has acquired number of companies,
globally, since 2002. The company is having good acquisition
strategy.
3. The company has acquired North-America based health care
company called Draxis health in April 2008. Draxis health is debt
free company with FY2007 revenues stood at Rs.320 crore. It
has noted clients like Johnson and Johnson (J&J), GE health care
and Glaxo Smithkline. Draxis has signed a 5 year contract of
$120 million with J&J consumer last year.
4. Draxis acquisition also gives an opportunity to enter in the high
margin radio pharmaceutical products.
(Updated date - Dec 2008)
Expansion details/plans
1. The company’s expansion at Hollister-Steir’s sterlite injectbles unit from 48 million to 120 million vials PA (per annum/year). The
expansion will help to improve the margins in the financial year 2008-2009.
2. In the industrial chemicals segment, the company has improved its capacity by new addition as well as de-bottles necking of
existing capacities to meet the increase in demand of acetyl products, which are used as intermediates in a number of
industries.
3. In addition, it expects to double its revenues from single super phosphate (fertilizer) in FY09, due to the government’s favourable
subsidy policy and increase output from its new plant in Udaipur, Rajasthan.
4. The company plans to invest Rs.750 crore in FY2009 to expand its CRAMS (including Hollister-Steir expansion), active
pharmaceuticals ingredients, acetyl products and research and development section.
5. The company also plans to set up 5-6 hospitals with a total bid capacity of 1000 expected in FY2009.
Growing Earnings
1. Revenues were up 71% in FY08 (as compared to FY07) from pharma/life sciences segment, this is largely due to contribution
from Hollister-Steir (21% of CRAMS revenues of Rs.1,310 crore).
2. The company expects its industrial/performance chemical revenues which grew at about 4.8% in FY2008 to move up
substantially due to expansions.
3. Revenues from single super phosphate, which contributed about Rs.80 crore in FY08, are expected to double due to the setting
up of a new unit.
4. Considering the growth prospects in its healthcare business, revenues from Draxis, enhancement of capacity at Hollister and
higher growth expected in the industrial/performance chemicals business, the company is likely to post revenues of about
Rs.3,500 crore for FY09.
Latest Updates
(26 Feb 2009)
Jubilant Organosys repurchases FCCBs worth USD 59.4 mn
Jubilant Organosys has repurchased and cancelled via tender offer, Foreign Currency Convertible Bonds (FCCBs) to the tune of USD 48.3 million together with the earlier buy back of USD 11.1 million in the first week of February 2009.
The face value the bonds acquired is USD 59.4 million of an accretive value of USD 72.3 million by paying USD 47.6 million. The total cumulative gain on purchase of FCCBs till date including YTM is USD 24.7 million. The company still has outstanding FCCBs worth USD 193.6 million which represent 62.4% of the original value of USD 310 million.
The company has used it`s foreign exchange earnings (EEFC) and external commercial borrowing resources to buy-back FCCBs.
Shyam Bhartia, chairman and managing director while commenting on the development said `` It is a part of our serious efforts to strengthen our balance sheet by reducing outstanding liabilities of FCCBs. The company would continue to explore further opportunities for buy back based on economic and applicable regulation. ``
(01 Dec 2008)
Jubilant sees 50% growth in sales on offshoring, life sciences business
Jubilant Organosys, a Delhibased integrated pharmaceutical company, said its sales would grow by 50 per cent in FY 2009, helped by a spurt in life sciences business and also outsourcing.
The drug maker’s forecast comes amid an expected drop in drug exports by at least 10 per cent owing to a slowdown in the developed countries including in the US and Europe. The company attributes the enhanced projection to its business model, which is largely dependent on the outsourcing opportunities in the international market.
Company has given a guidance of 50 per cent growth. However, for life science segment, it is much higher. The company registered 65 per cent growth in revenue in the first half of the current financial year.
Jubilant is the only leading Indian pharmaceutical company that does not have its own products in the domestic retail market. Its revenues are derived from the outsourcing business it does in the area of pharmaceutical manufacturing and services.
The company supplies raw materials to leading pharmaceutical firms mostly located in the US and Europe. It also does contract research for them. The company registered annual revenues of about Rs 2,500 crore in 2007-08, “In light of the improved production capacities, expanded product line-up and enhanced global scope of operations, Jubilant believes it will record more than 50 per cent rise in revenues for FY 2009 - Source - Business Standard
Returns
CMP - Rs.1097
The company has a consistent and generous dividend policy. In the last four years it has hiked its dividend from Rs.24 in 2004 to Rs.36 per share in 2007.
40 to 60% returns can be expected in next 2 to 3 years period.
About Company
1. GlaxoSmithkline pharmaceutical is one of the largest players in the domestic pharmaceutical market with a 6.2 per cent market
share.
2. The Rs.1,500 crore company is a key player in the antibiotics, gastrointestinal, nutritional, dermatological and respiratory care
segments.
3. The company is now looking at patented new product launches to increase sales, reach and market share.
4. The company is also targeting the rural healthcare space, which accounts for 64 per cent of India’s healthcare spend.
New product launch
1. The company is planning to launch a cardiovascular drug in the first half of the current year.
2. It is estimated that the company will be able to generate about Rs.100 crore from new product launches for CY08.
3. For Cy09, the company has lined up Allermist (for allergic rhinitis), Cervarix (cervical cancer) and Alvimopan (bowel motility). The
focus on new products will help achieve higher growth rates for the company.
4. The company expects product launched in 2007 and those to be launched later on in the year 2008 and 2009 to provide enough
thrust to achieve double digit top line growth.
Growth strategy
1. The company plans to expand its presence in the hospitals segment where it is the market leader with a share of 7.4%.
2. The company intends to improve its product mix by focusing on high margin products in lifestyle disease categories of diabetes,
cardiovascular systems, and oncology.
3. The company is restructuring its sales force to create new teams to push sales in the three lifestyle categories.
GlaxoSmithkline Pharmaceuticals Ltd
(Researched date - Oct 2008)
Plethico Pharmaceuticals Ltd
(Updated date - Dec 2008)
Returns
CMP - Rs.117
Buying Price - Below Rs.110 (It went down till Rs.81)
Returns above 60%.
Duration - 2 to 3 years.
Taking into consideration Rs.81 as buying price following are the returns
98% Target acheived in month of 08 May 2009 (Updated - May 2009)
About Company
1. Plethico pharmaceuticals, a manufacturer of over the counter healthcare products, is expanding its presence in the overseas
markets to broad base its revenue base. The company is also planning to expand its manufacturing facilities to cater to increasing
demand for its products in the herbal, consumer healthcare and nutraceuticals, pharmaceuticals formulations, and hospital
consumables space.
2. Plethico has 45 products in the herbals and nutraceuticals segment with its top brand Travisil accounting for 15% of total sales.
Company’s Acquisition
1. Plethico bought an American company, Natrol, specializing in herbal care products, in January this year to expand its presence in
the regulated markets and is in the process of putting up a manufacturing plant in Dubai.
2. To capture a share of the regulated markets, the company acquires US-based Natrol for $80.7 million. Natrol is a manufacturer of
branded nutritional products and its acquisition will give the company an immediate presence not only in the US but also in the
UK and Hong Kong.
Future Plans
1. Plethico is planning to manufacture Natrol brands in India and sell them in the country and other semi-regulated markets along
with the US markets. This will help to improve its margins going forward.
2. The company plans to market its own key brands of Travisil (cough and cold) and Mountain Herbz (lifestyle ailment medication) in
the US over the next few months using the already established distribution channel of Natrol.
Growth Plan
1. The World Health Organization estimates that the world market for herbal products would be around $60 billion and growing at 7
per cent annually. Europe accounts for the largest chunk at $23 billion, while the North American market is estimated at $13.2
billion.
2. Global nutraceuticals market is also projected to witness healthy growth and expected to cross $187 billion in sales by 2010.
3. The growth in world markets and the acquisition of Natrol is likely to push Plethico’s share of the herbal and nutraceuticals
segment in the total revenues to over 70 per cent in FY09 and FY10 from 50 per cent in FY07. The upcoming Dubai plant will also
help improve Plethico’s reach further.
4. Regards the Indian nutraceuticals market, it is currently pegged at $40 million, and is likely to touch $270 million in two years.
Overseas Expansion Plan
1. Plethico is setting up an Rs.100 crore production facilities in Dubai to manufacture medical lozenges and new drug delivery
system (tablet/capsules), confectionary and allied products.
2. Plethico was facing capacity crunch, the company believes that the new unit will be in proximity to markets of Commonwealth
of Independent States (CIS), Europe, South Asia and Africa and will be entitled to tax breaks.
3. The plant is expected to be operational by CY 2010. The company is focused on its herbals and nutraceuticals business, it also
carries out contract manufacturing, where it supplies bulk drugs and intermediates to Indian manufactures.
Revenues Generation
1. The company ended the 15 month period in December 2007 with revenues of Rs.555 crore.
2. The company’s performance in December quarter has been robust. Sales at Rs.122 crore for the quarter ended December were up
50 per cent, largely due to increased contributions from South East Asia, West Asia and Latin America, which accounted for 28
per cent of revenues.
3. Operating profit margins have been hovering at around 25-30 per cent over the last years.
4. At Rs.384, the stock trades at a P/E of 9 times its estimated CY08 earnings of Rs.42. given the growth prospects in new markets
and the benefits from the Natrol acquisition, the stock should generate about 40 per cent returns by the end of 2009.
Returns
CMP - Rs.147.25
Investment period - 12 to18 month
Returns - 30 to 40%
PE - 18.45
EPS - 7.45 (as on Mar' 08)
About Company
Dishman pharma is engaged in contract manufacturing. Contract manufacturing brings in about 70% of the company’s revenues
and the company has been expanding its capacities and expertise to improve its revenue.
The company is also involved in chemical business. The company’s 80% business comes from Europe Company’s Contract manufacturing business, while USA accounts for 5%.
1. Contract manufacturing revenues for Dishman are largely driven by two entities in Europe-Switzerland based Carbogen Amcis
(subsidiary) and Solvay Pharma to which it supplies Eposartan Mesylate (EM), an API used in making anti-hypertension
medication and these companies will continue to contribute about half of the company’s revenues going ahead.
2. The company’s Swiss subsidiary, Carbogen, which will operate Asia’s largest facility to manufacture cancer drugs at its Rs 50
crore Bavla plant in Gurajat and API’s manufactured here will be supplied by Carbogen to its customers in Europe.
3. The company is also banking on supply of about 14 APIs to Astra Zeneca and estimates that the value of the orders in FY09
and FY10 will be about $10 million and 25$ million, respectively.
Company’s Chemical business
1. Company’s other business segment is marketable molecules, which includes bulk drugs, intermediates, quats (quaternary
compounds or catalysts, used to transfer a reactant from one phase to another in pharmaceutical and other industries) and
specialty chemicals.
2. The company is now focussing on value-added products such as high value quats, which find specialised applications in car
batteries and energy saving processes. Its initiatives on this front and moving the production of low value quats to China have
improved margins in the segment to about 18 per cent in Q2, FY09 from about 10 per cent in the last fiscal.
Future plans
1. The company expects the contribution from the US to move to about 15 per cent over the next three years.
2. Dishman has an expenditure plan of Rs 150 crore for the current fiscal, which will be used to fund a greenfield unit in China to
manufacture low value quats, expand its Carbogen Amcis facility and meet working capital requirements for supply of APIs.
3. The company is also aggressively looking at expanding into Saudi Arabia through a JV, while investing in a marketing network
in Australia and Japan.
4. While the Saudi Arabian and Australian ventures will look at the manufacture and marketing of disinfectants and sanitisation
products, the company expects its Japanese venture to boost its sales of APIs
5. Dishman expects its disinfectants business to generate about Rs 20 crore in FY10.
Fears of slowdown
1. The concern area for the company is the slowdown on outsourcing contracts. The squeeze on private equity funding, which
sustains many of the smaller biotech players in Europe, might impact revenues of Carbogen Amcis (which is subsidiary of
dishman pharma) The company management, however, says that outsourcing contracts of smaller biotech players account for
less than 25 per cent of Carbogen’s revenues and so far it has not faced any issues on that front.
2. While it will not stop or postpone its ongoing projects, the tightness in the credit markets means that the company is likely to
put a lid on its inorganic initiatives and instead try to expand production at its existing units.
Dishman Pharmaceuticals & Chemicals Ltd
(Updated - Dec 2008)
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