Initiating Coverage
Vivimed Labs Limited
November 12, 2010 BUY HIGH RISK PRICE Rs.338 TARGET Rs. 450
STRENGTH: High Entry Barriers, Early mover advantage, Growing end user industry, Strong Specialty Clientele, Consistent Past Performance WEAKNESS: Difficult to make inroads to acquire
Chemicals & new customers. OPPORTUNITIES: Foray into branded formulations space in the
Russia/CIS region; Capacity Expansion in Specialty chemicals & Pharmaceuticals. THREAT: Pharmaceuticals Exchange rate volatility, Dilution risk.
High Entry Barriers to become a preferred supplier SHARE HOLDING (%) Customer qualification norms are complicated, stringent, and costly making the registration Promoters 52.2 a time consuming process. It takes around 3-5 years for a company to make inroads to FII 6.4 become a preferred supplier for major global companies. Business is normally not done on FI / MF 0.2 “price” but on relationships, product portfolio, service levels and quality standards. Body Corporates 5.8 However, quality of the product takes the topmost level in the pyramid for clients since they Public & Others 32.6 invest a lot of time and money to get in a new supplier as any compromise on the quality front could tarnish the brand value of the product and the company as well.
STOCK DATA Strong clientele base Reuters Code VVMD.BO Vivimed is an approved supplier to global personal care giants like L’Oreal, Unilever, P&G, Bloomberg Code VILA IN and Johnson & Johnson etc., wherein the contracts are generally long-term in nature. In the specialty pharmaceuticals division, it supplies to major pharmaceutical companies like BSE Code 532660 Merck, Lupin, Novartis, Cipla, and AstraZeneca etc. NSE Symbol VIVIMEDLAB Market Rs. 3876.8 mn Continuous capacity expansion in existing plants and setting up of an SEZ Capitalization* US$ 86.2 mn Capacity expansion is a continuous and an ongoing process for Vivimed. Vivimed has been undertaking Brownfield expansion by building new blocks at its Bonthapally plant catering to Shares 114.7 mn specialty chemical segments of Skincare, Hair & Oral care and also at its Jeedimetla (Pharma) Outstanding* plant. Vivimed is also setting up a pharmaceutical manufacturing plant in Choutuppal, 52 Weeks (H/L) Rs. 351/114 Hyderabad (AP) and has received an in-principle approval for setting up an SEZ, on 250 acres of land for its specialty chemicals business. Avg. Daily 85,474 Shares Volume (6m) Alliance with ISP Vivimed has entered into a manufacturing alliance with US-based International Specialty Price Performance (%) Products (ISP) in Jun’10 for sunscreens, with full support from ISP's global sales, marketing 1M 3M 6M and technical service teams. We believe this alliance would generate revenue of around Rs. 421 mn in FY12E. 7 54 114 200 Days EMA: Rs.218 Focus more on Branded formulations Vivimed has forayed into formulation exports to Russia / CIS countries, where we believe *On fully diluted equity shares the Company will witness a CAGR growth of 16.5% in sales for the period of FY09-FY12E.
OUTLOOK & VALUATION Vivimed backed by its strong product profile has delivered excellent numbers in the past. Its revenue has grown at a CAGR of 37% from FY07-10, while the EBITDA and PAT have grown at a CAGR of 32% and 34%, respectively. Vivimed has embarked on a Rs. 1.58 bn expansion plan to be executed over the next three years, which we believe will be a significant growth driver. Keeping in mind the Company’s strong track record, established customer base, increasing product profile and increasing demand for its products backed by volume expansion, we expect its revenue and PAT to grow at a CAGR of 27.7% and 35.8% over FY09- 12E. It is currently trading at a P/E of 6.8x its FY12E diluted EPS of Rs. 50 and we recommend a “BUY” with a target price of Rs. 450 (9x FY12E EPS). ANALYST Suneel Rao | +91 22 4093 5068 KEY FINANCIALS [email protected] Y/E Revenue RPAT AEPS AEPS P/E ROCE ROE P/BV SALES: Mar. (Rs mn) (Rs mn) (Rs) (% Ch.) (x) (%) (%) (x) Devang Shah | +91 22 4093 6060/61 FY09 2761.2 193.5 20.6 21.3 16.4 11.4 20.7 3.1 [email protected] FY10 3434.9 310.1 31.1 51.2 10.9 12.9 25.1 2.3 Nishit Shah | +91 22 4093 5074 FY11E 4116.1 391.4 39.3 26.2 8.6 14.2 23.7 1.8 [email protected] FY12E 5598.0 572.1 50.0 27.1 6.8 15.7 26.0 1.5
Please refer to important disclosures at the end of the report For private Circulation Only.
Sushil Financial Services Private Limited Member : BSEL, SEBI Regn.No. INB/F010982338 | NSEIL, SEBI Regn.No.INB/F230607435. Office : 12, Homji Street, Fort, Mumbai 400 001. Phone: +91 22 40936000 Fax: +91 22 22665758 Email : [email protected] Please refer to important disclosures at the end of the report For private Circulation Only.
Vivimed Labs Ltd.
COMPANY OVERVIEW Incorporated in 1989, Vivimed Labs Ltd (Vivimed) is a predominantly a speciality chemical manufacturer with primary focus on the Home and Personal Care (H&PC) segment. It also is into manufacturing of pharmaceutical API’s and formulations. However, the H&PC Actives Division has been the key mover and the driver that has enabled Vivimed Labs to build its international reputation as it exports to more than 50 countries.
H&PC Actives Division: Vivimed’s extensive range of speciality chemicals caters to segments such as: Divisions Products End Use VIV-20 Antibacterial for Toothpastes and Mouthwash VIVCAL – G Nutraceutical, Dental enamel protection Oral Care VIVHEX Antibacterial for Mouthwash VIVHEX – G Antibacterial for Mouthwash AVIS Broad Spectrum UV – A filter CINNAMON UV – B category 1 filter BEN – 3 Oil soluble UV – A & UV – B filter Sun Care Ben – 4 Water soluble UV – A & UV – B filter OCTYNE – B Oil soluble UV – B filter ETONE UV – A & UV – B filter VINTOX Anti-oxidant & Anti-aging molecule VIVINOL Skin Lightening agent Skin Care TRU ALOE Skin Moisturizer C-VITE Anti Wrinkle DANTUFF – Z Broad Spectrum Anti dandruff agent DANTUFF – C Anti-fungal agent in transparent shampoos DANTUFF – K Anti dandruff & Anti-fungal agent Hair Care VIPIROX Anti dandruff agent VIVIDINE Hair growth agent CO-GUAR Emollients & Conditioners Preservatives COSVAT Anti-fungal & Anti bacterial VIVILIDE Wide Spectrum Bacteriostatic Antimicrobials VIVMAX Antimicrobial & Germicidal VIV – 20 Antibacterial for Cosmetics & Toiletries
It holds a unique position in the international H&PC industry with supply-chain relationship with global leaders including - Unilever, L'Oreal, Procter & Gamble, Johnson & Johnson etc. Having exclusive tie ups with global logistics companies, Vivimed has been offering shipment, warehousing, redistribution and door delivery services to large global majors. It has a global network of offices, representatives and distributors across America, Europe, Far East and the Asia Pacific region.
Vivimed Labs Europe Ltd (James Robinson Ltd) – Acquired in the year 2008, Vivimed labs Europe Ltd is a leading global supplier of dyes used in a host of personal care and consumer products ranging from hair dye intermediates and photographic developer chemicals to ophthalmic lenses and fluorescent dyes for textiles, inks and coatings. This acquisition has seamlessly positioned Vivimed in the larger and high value space of high- end specialty chemicals.
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Vivimed Labs Ltd.
Vivimed Labs USA, Inc. (Harmet International Ltd) – acquired in the year 2009 as a US hub to increase its global footprint and cut down the time to market for global customers Harmet International has become a strategic and relevant entity.
Revenue Growth H&PC Actives Division 3000 2615 2500 2076 2000
1500 1275 992 1000
500
0 FY07 FY08 FY09 FY10
Source: Annual Report
Specialty Pharma Division: This specialty division has its inherent strengths in drug delivery and drug discovery with focus on providing cures in the oncology space, arthritis, syndrome X, macular degeneration, psoriasis and stress. Moreover, Vivimed is an active player in CRAMS (Contract Research and Manufacturing Services) segment providing vendor partnerships ranging from molecular research to collaborative manufacturing.
Vivimed has shown a steady growth in its revenues across segments over the past four years.
Revenue Growth Speciality Pharmaceuticals 900 820 800 686 700 600 535 500 400 348 300 200 100 0 FY07 FY08 FY09 FY10
Source: Annual Report
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Vivimed derives around 58% of its revenues from exports to around 50 countries across the world. A detailed breakup of the export and the domestic business contribution to the revenues of the company is given below.
Segmental Breakup 2001 Export 1591 481
Total 1433 Domestic 1170 1329
45 Export 31 17
775 Specialty Domestic 655
518 Pharmaceuticals 1957 Export 1560 464
658 Specialty
Chemicals Domestic 516 812
Rs. in Mn 0 300 600 900 1200 1500 1800 2100 FY10 FY09 FY08
Source: Company
Vivimed has five state of the art manufacturing plants at various locations in India and two R&D facilities – one in Hyderabad & the other in Huddersfield, UK. It has also received in- principle approval for setting up an SEZ, on 250 acres of land, in Sirkakulam, Andhra Pradesh. Manufacturing Plant Locations Plant Location Manufacturing Details Bidar Northern Karnataka Specialty Chemicals - Bonthapally Hyderabad Specialty Chemicals - Dosage forms such as liquid orals, Formulations and Jeedimetla Hyderabad tablets capsules and R&D ointments in various therapeutic areas. Haridwar Uttarakhand Formulations Sterile Products Non-Sterile Syrups, Kashipur Uttarakhand Formulations tablets, capsules and dry powders. Source: Company
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Vivimed Labs Ltd.
INVESTMENT ARGUMENTS
High Entry Barriers to become a preferred supplier Specialty chemicals forms an important part of the personal care product even though on volume basis its presence in the product is approximately in the range of 0.1% to 0.5%. Since it forms a very small part of the manufacturing costs of the personal care products, and hence companies like Unilever, L’Oreal, etc, focus more on the quality of these ingredients. Business is not done Quality of Relationship on “price” but on relationships, the products product portfolio, service levels and quality standards. Any Service compromise on the quality front Levels could tarnish the billion dollar image of the product and the company as well. As a result, stringent quality norms need to be followed by the suppliers of these specialty chemical Preferred Supplier ingredients. If the company is happy with the quality, it rarely changes the supplier.
Vivimed enjoys the benefits of early mover advantage as it has been in this line of business since a long time and it is already an approved supplier for global giants as well as domestic companies like L’Oreal, Unilever, P&G, Marico etc. for certain personal care ingredients and therefore it faces limited competition.
New Product New Product Approval Supply Agreements Development Process
•Time Frame • 1st Year - 10-20% of • Time taken to develop a Supply. product - Upto 12 •Existing Supplier - 12 • 2nd Year - 25-30% of Months. Months Supply. • New Supplier - 36-60 • 3rd Year - 50-60% of months Supply.
The entry barriers in the line of the speciality business that Vivimed caters to is substantial which makes it difficult for new companies to make inroads and takes as much as 3-5 years to become a preferred supplier to global giants in the personal care segment in the US and European markets. Also due to brand sensitivity, vendor qualification is of paramount importance and usually involves elaborate procedures for introducing new suppliers.
In case of a new product approval process, it takes around 12 months for the existing supplier to get an approval after which yearly supplies of the product commences with the maximum order to one supplier being close to 60% of the requirement which maintains healthy competition and also reduces over dependency on one supplier incase of unexpected conditions affecting the timely completion of orders in hand or quality problems if any.
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Vivimed Labs Ltd.
However, once a partnership is established then the relationships tend to be long term in nature with yearly contract renewals and orders with regular quality audits conducted by the global personal care companies.
Continuous capacity expansion in existing plants and setting up of an SEZ to drive volume growth Capacity expansion is a continuous and an ongoing process for Vivimed which is visible with its gross block CAGR growth of 38.6% over the period of FY07-10. The need for expansion of its production capacity is driven by the volume growth in existing products and introduction of new products.
Future CAPEX 600
500 250 400 350 300
Rs. in in Rs. Mn 500 200 330 100 150 0 FY11E FY12E FY13E Bonthapally & Jeedimetla Choutuppal AP SEZ
Source: Company
The company has chalked a capex of Rs. 1580 mn over the period of next three years.
The capex is to be spent on three specific expansions which are: Bonthapally & Jeedimetla: Vivimed’s existing plant in Bonthapally, Hyderabad, AP is built on about 10 acres of land wherein it has been undertaking brownfield expansion by building new blocks. It has also acquired additional land of about 9 acres adjacent to its existing plant in Bonthapally to facilitate further expansion in its Specialty Chemicals business. It is also building a new block in Jeedimetla, Hyderabad, AP catering to the Pharmaceutical division of the company.
Choutuppal: Vivimed is also setting up a Greenfield pharmaceutical manufacturing plant in Choutuppal, Hyderabad, AP which it plans to get approved by the USFDA to facilitate it foray into the regulated markets of US and Europe.
AP SEZ: Vivimed has received in-principle approval for setting up an SEZ, on 250 acres of land which it has already acquired over the last three years, in Srikakulam in Andhra Pradesh. The land is located at a distance of around 50 kms from Vizag. The first block is expected to be operational in the second half of FY12; however we are expecting the first commercial turnover to figure in FY13. We believe the company has invested in the land keeping in mind the future capacity expansion that it requires to make on an ongoing basis to become the number one supplier for major MNC’s.
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Vivimed Labs Ltd.
Capacity Additions (MT) 1600 1500 1400
1200
1000
800
600 500 350 400 200 200 30 0 Sun Screen Anti Dandruff Anti Microbial Haircare Skin Whitener
Source: Company
We believe the anti-microbial and the sunscreen facility will be operational in the last quarter of FY11 whereas the remaining capacity expansions in anti-dandruff, catonic guar & skin whitener will become operational in FY12. With the above mentioned capacity expansion in the segments of skincare, oral care and hair care we believe the company would be in a position to garner additional revenue of Rs. 240 mn & Rs. 1070 mn in FY11E and FY12E respectively.
Long term nature of contracts The contracts that Vivimed has entered into with global giants are generally long-term in nature. This is because, once the customers are convinced with the quality and the delivery commitment then the customer prefer not to change the supplier since it has to invest a lot of time and money to get in a new supplier.
It gives an opportunity to players like Vivimed to partner in the growth of these personal care companies, both from the perspective of volume growth of a product and geographical expansion as well as becoming a supplier for new products introduced by the personal care company.
Alliance with ISP Vivimed enters into alliances with companies that are already preferred suppliers to big personal care companies or have a wide distribution network in order to increase geographical presence and also take cost-based advantages.
Vivimed entered into a manufacturing alliance with International Specialty Products Inc. (ISP) USA, in Jun’10, for sunscreens, which will eventually see it emerging as a major global provider of sunscreen ingredients. ISP is a leading global supplier of specialty chemicals and performance enhancing products and produces more than 500 specialty chemicals, which it markets and sells worldwide. The two companies will use this alliance for joint marketing of some products. From November 2010, ISP will add a number of UVA and UVB absorbers that are already manufactured by Vivimed, to its portfolio of sun protection ingredients. We have factored in revenues of Rs. 421 mn from this alliance to accrue in FY12E.
Strong focus on R&D and continuous development of new products A key requisite to remain competitive in the field of specialty chemicals is to continuously come up with new products at regular intervals. Vivimed has two R&D facilities, in
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Vivimed Labs Ltd.
Hyderabad and Huddersfield (UK), and also partners with its customers to continuously develop new ingredients wherein it gets the added incentive of 100% supply if the product gets approved. Since the company is investing in R&D activity in a significant way, it is in a position to cater to the client’s continuous need for innovation. R&D expenditure for Vivimed could be in the range of 1-2% of sales going forward.
Research & New Molecule Supply Agreements Development Development Process
• Partner with •Product Innovation • Joint Research - Customer/ Joint 100% Supply Research •Synthesis Agreement
• Independent •Saturation Studies • Independent Research Research -
Agreement is •Formulation subject to a no of factors.
The company is planning to launch new products like C-Vite and Catonic guar in H2FY11. We believe C-Vite, which is a specialty chemical for the sunscreen segment, will clock revenues of around Rs. 140 mn in FY12E. Cationic Guar is an ingredient which has been approved by an existing customer of Vivimed for their global shampoo brand. We believe the company can clock revenues of around Rs. 140 mn from this launch in FY12E. The company is also developing a proprietary product for skin lightening which is undergoing trial-runs with a global major in India. Global supplies for this product are expected to start in FY12E with contribution towards revenue expected to be around Rs. 150 mn.
In order to make the most of the increasing demand for natural ingredients the company has undertaken investment in R&D to discover alternate natural ingredients for some of its applications in its R&D facility in Hyderabad. However we have not factored any revenue contribution from the same since it is at a very nascent stage.
Strong clientele Vivimed enjoys an early mover advantage on the back of which it boasts a strong clientele base. Even though US and Europe have been the biggest markets for personal care products; the developing nations are also catching up on the back of changing lifestyle, higher disposable income, higher outdoor activity, etc. It is expected to capitalize on the opportunities available in the personal care ingredients space as it is an approved supplier to global personal care giants like L’Oreal, Unilever, P&G, etc.
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Vivimed Labs Ltd.
In terms of leading brands in which ingredients manufactured by Vivimed are used are Clinic All clear, Head & Shoulders, Colgate, Revlon Color Silk, Fair & Lovely, Pepsodent, Palmolive Naturals Shampoo etc. The Speciality Pharmaceuticals segment of the company is also witnessing steady growth. It supplies to major pharmaceutical companies like Merck, Lupin, Novartis, Cipla etc.
Focus more on Branded formulations: Vivimed has seen a steady growth in the Pharma segment and has strengthened its position among marquee MNCs like Novartis, Merck Ltd, AstraZeneca etc as a consistent and quality conscious manufacturer of branded formulations. The pharmaceutical formulations business is segmented in two growth driving areas going ahead namely:- Establish own brand sales in Eastern European Markets Contract Manufacturing The Company has forayed into formulation exports to Russia / CIS countries and we are optimistic of witnessing a CAGR growth of 16.5% in the export sales for the period of FY09- FY12E. Vivimed has been actively registering more 1200 Increasing contribution from Branded Formulations products for future 1000 exports. The division has now appointed a full 800 fledged sales team for 668 566 the African Continent 600 492 and has already initiated 411 registrations in eight 400 African countries. We 200 361 397 have factored in revenue 274 328 of Rs. 566 mn and Rs. 668 0 mn in FY11E and FY12E FY09 FY10 FY11E FY12E from its branded CRAMS Branded Formulations formulations business. Source: Company, Sushil Finance We believe the sales mix would see a marginal change with greater contribution from the company’s branded formulations business going forward.
Also with the setting up the USFDA approved pharmaceutical plant in Hyderabad, we believe the company would be in a position to foray into the regulated markets of US and Europe. However, we have not factored in any revenue increment coming from these markets.
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Vivimed Labs Ltd.
Consistent Performance Vivimed backed by its strong product profile has delivered excellent numbers in the past. The company’s revenue has grown at a CAGR of 37% from FY07-10, while the EBITDA and PAT have grown at a CAGR of 32% and 34% respectively.
6000 1200 Net Sales (Rs. In Mn) 5598 EBIDTA (Rs. In Mn) 1075 5000 1000 4116 770 4000 3435 800 631 2761 3000 600 450 1810 2000 400 313 1340 260 1000 200
0 0 FY07 FY08 FY09 FY10 FY11E FY12E FY07 FY08 FY09 FY10 FY11E FY12E
700 RPAT (Rs. In Mn) 600 572
500 391 400 310 300 194 200 159 136 100
0 FY07 FY08 FY09 FY10 FY11E FY12E
Source: Annual Report, Sushil Finance Going ahead the company’s revenue is expected to grow at a CAGR of 28% from FY10-12E. Its EBITDA is likely to grow at higher CAGR of 30% in the same period due to the change in the sales mix with considerable capacity expansion in the specialty chemicals business. We believe the Net Profit is likely to grow at a CAGR of 36% from FY10-12E.
Healthy balance sheet and expanding return ratios
3500 3.5 30.0 Debt to Equity Improving ROE & ROCE 3000 3.0 25.0 2500 2.5 20.0 2000 2.0 15.0 1500 1.5 1000 1.0 10.0
500 0.5 5.0
0 0.0 0.0 FY07 FY08 FY09 FY10 FY11E FY12E FY08 FY09 FY10 FY11E FY12E Debt D:E Ratio ROCE (%) ROE (%)
Source: Annual Report, Sushil Finance
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Vivimed Labs Ltd.
The D: E ratio of the company has fallen from 2.9x in FY09 to almost 1.6x in FY10 which is further likely to decline to 1.3x by FY12E, thus strengthening the balance sheet. Also the Company has healthy return ratios with ROE & ROCE pegged at 26% and 16% respectively for FY12E.
INDUSTRY OVERVIEW Global Specialty Chemical Industry Specialty chemicals are a category of relatively high valued, rapidly growing chemicals with diverse end product markets. The specialty chemicals industry consists of approximately fifty segments including personal care chemicals, construction chemicals, electronic chemicals, polymer additives, textile chemicals, oil field chemicals etc. The global specialty chemicals market size is $639.9 billion. The market is concentrated largely in the US, Europe and Japan but future growth is expected to come from the emerging Asian markets driven by a continued strong increase in consumer spending. The high growth rates in these economies are ushering in prosperity and improved life style which mandate a greater usage of productivity and performance enhancing materials.
In 2014, the global specialty chemicals market is forecasted to have a value of $892.1 billion, an increase of 39.4% since 2009 whereas the Indian specialty chemicals market including knowledge chemicals is likely to double to USD 40 bn by 2011, registering a 17% annual growth rate.
45 Indian Specialty & Knowledge Chemicals 40 Industry Growth 35 30 CAGR of 17% 25 20
Value $bn in 15 10 5 0 2002 2006 2011E
Source: Annual Report The Indian industry would be driven by the twin growth engines comprising of: Domestic demand (consumption in end user industries) Exports based production with India becoming a preferred destination.
Indian Personal Care Industry The same is visible in the Indian personal care industry that has taken rapid strides in the last few years, moving towards premium products incorporating specialty ingredients in their formulation.
The personal care market in India is estimated to be worth ~$ 4-bn. Personal hygiene products, hair care, skin care, colour cosmetics and fragrances are the key segments of the personal care market. However, the Indian personal care ingredients used in the formulation of personal care products is currently estimated at ~$300-350 mn. The relatively higher price sensitivity of the Indian personal care market has traditionally
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Vivimed Labs Ltd.
limited the role of high value personal care ingredients. This has also contributed to lower R&D spends and fewer innovations by the Indian personal care product formulation companies, few of which are backward integrated in the personal care ingredients space. However, the recent market developments and changed competitive landscape with the advent of large Burgeoning corporations willing to take middle class investment decisions for a longer time horizon have contributed to changing the Growing scenario. Increasing beauty urbanization consciousnes Also favorable demographic Expanding s demand for factors and increasing personal beauty consciousness care indicate high future demand for personal care products and specifically for active A growing Increasing ingredients. population disposable of women in income the 25-44 Indian personal care levels age group industry typically uses specialty chemicals, such as surfactants, fragrance compounds, polymer compounds and UV filters as active ingredients.
Growing demand is leading to development of high-end specialty active ingredients, with a stronger emphasis on organic (natural) ingredients. Driven by increasing consumer preference for products with better functional benefits, the personal care ingredients market is expected to surpass the growth of the personal care products market. However, it will be important for companies in the personal care ingredients space to develop R&D capabilities to further customize products and also to introduce new products on a regular basis to be the eventual winners.
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Vivimed Labs Ltd.
RISK & CONCERNS Foreign Exchange Risk Vivimed derives close to 58% of its revenues from global markets. Thus any adverse movement in USD-INR could affect the margins of the company going forward. Although it does have a partial natural hedge against such adverse movement as it imports raw materials and also majority of its debt is foreign currency term loans.
Dilution Risk In order to keep a check on the debt levels, the company might think of diluting equity further to fund its future expansion plans. However we have not factored in any further equity dilution other than the warrant conversion expected in FY12 which would increase its equity capital to Rs. 114.7 mn.
OUTLOOK & VALUATION Vivimed Labs is involved in the manufacture of specialty chemicals (contributing nearly 75% of its revenues) and pharmaceutical formulations. The mantra at Vivimed now is to focus more on specialty chemicals with a target to see around 75% of its revenues coming from this segment. It is also making an effort towards moving out of low margin products and focusing on the relatively higher margin products which would better the margins going ahead. It has embarked on a Rs. 1580 mn expansion plan to be executed over the next three years. Going forward, we expect the growth in the Specialty Chemicals business to come from continuous volume expansion, supplying ingredients to the already existing customers in new geographies in addition to supplying ingredients for new products and new customers whereas in the Pharma business we believe the growth would be driven by increasing focus on branded formulation exports to Russia / CIS and other eastern European countries. Keeping in mind the company’s strong track record, established customer base, increasing product profile and increasing demand for its products backed by volume expansion, we expect its revenue and PAT to grow at a CAGR of 27.7% and 35.8% over FY09-12E. It is currently trading at a P/E of 6.8x its FY12E diluted EPS of Rs. 50 and we recommend a “BUY” with a target price of Rs. 450 (9x FY12E EPS).
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Vivimed Labs Ltd.
PROFIT & LOSS STATEMENT (Rs.mn) BALANCE SHEET STATEMENT (Rs.mn) Y/E March FY09 FY10 FY11E FY12E As on 31st March FY09 FY10 FY11E FY12E Net Sales 2761.2 3434.9 4116.1 5598.0 Share Capital 94.0 99.7 99.7 114.7 Warrant Application 23.4 49.6 79.6 0.0 Raw material 1872.6 2282.2 2778.4 3778.7 Money Manufacturing 236.4 258.9 296.4 403.1 Reserves & Surplus 908.1 1299.4 1673.3 2437.9 Net Worth 1025.5 1448.6 1852.5 2552.5 Staff Cost 167.7 220.7 226.4 279.9 Secured Loans 2237.7 2345.5 2874.2 3280.2 Total Expenditure 2311.2 2804.1 3346.4 4523.2 Unsecured Loans 767.0 7.4 7.4 7.4 Total Loan funds 3004.7 2352.9 2881.6 3287.6 PBIDT 450.1 630.8 769.7 1074.8 Deferred Tax 130.3 161.9 161.9 161.9 Interest 172.7 212.3 230.5 263.0 Capital Employed 4161 3963 4896 6002 Depreciation 71.5 87.3 108.8 136.4 Net Block 1480.3 1607.4 2078.6 2442.2 Cap. WIP 268.8 11.4 11.4 11.4 Other Income 25.3 65.3 70.0 56.0 Investments 804.8 939.8 939.8 939.8 PBT incl OI 231.1 396.5 500.3 731.4 Sundry Debtors 707.5 938.6 1014.9 1380.3 Cash & Bank Bal 169.8 56.2 219.6 390.0 Tax 37.6 86.3 109.0 159.3 Loans & Advances 264.1 152.3 248.1 337.4 RPAT 193.5 310.1 391.4 572.1 Inventory 691.3 793.5 875.4 1190.5 Minority Interest 0.0 0.0 0.0 0.0 Curr Liab & Prov 313.5 593.8 549.8 747.7 Net Current Assets 1519.1 1346.7 1808.2 2550.6 RPAT after MI 193.5 310.1 391.4 572.1 Total Assets 4161 3963 4896 6002
FINANCIAL RATIO STATEMENT CASH FLOW STATEMENT (Rs.mn)
Y/E March FY09 FY10 FY11E FY12E Y/E March FY09 FY10 FY11E FY12E Growth (%) Profit before tax & 231.1 396.5 500.3 731.4 Net Sales 52.5 24.4 19.8 36.0 Extraordinary Items EBITDA 43.7 40.2 22.0 39.6 Depreciation & 71.5 87.3 108.8 136.4 Adjusted Net Profit 21.3 60.2 26.2 46.2 Amortization Profitability (%) Chg. in Working Capital -476.5 58.9 -298.1 -572.0 EBIDTA Margin (%) 16.3 18.4 18.7 19.2 Cash Flow from Net Profit Margin (%) 7.0 9.0 9.5 10.2 -168.2 551.3 202.1 136.6 Operating ROCE (%) 11.4 12.9 14.2 15.7 ROE (%) 20.7 25.1 23.7 26.0 (Incr)/ Decr in Gross -616.1 -214.5 -580.0 -500.0 Per Share Data (Rs.) PP&E EPS (Rs.) 20.6 31.1 39.3 50.0 (Incr)/Decr In -804.8 -135.0 0.0 0.0 CEPS (Rs.) 29.2 42.9 54.0 66.6 Intangibles Cash Flow from BVPS (Rs) 109.1 145.4 185.9 222.6 -1610.7 -71.3 -580.0 -500.0 Valuation Investing
PER (x) 16.4 10.9 8.6 6.8 PEG (x) 0.8 0.2 0.3 0.3 (Decr)/Incr in Debt 1837.5 -651.8 528.8 406.0 P/BV (x) 3.1 2.3 1.8 1.5 (Decr)/Incr in Share 0.0 5.6 0.0 15.0 EV/EBITDA (x) 13.4 9.0 7.8 6.3 Capital EV/Net Sales (x) 2.2 1.6 1.5 1.2 Dividend -16.5 -17.5 -17.5 -17.5 Cash Flow from Turnover 1793.3 -593.6 541.3 533.9 Debtor Days 84.0 87.5 90.0 90.0 Financing
Creditor Days 43.5 50.5 50.0 50.0 Cash at the End of the Gearing Ratio 169.8 56.2 219.6 390.0 D/E 2.9 1.6 1.6 1.3 Year Source: Company, Sushil Finance Research Estimates
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Rating Scale
This is a guide to the rating system used by our Equity Research Team. Our rating system comprises of six rating categories, with a corresponding risk rating.
Risk Rating Risk Description Predictability of Earnings / Dividends; Price Volatility Low Risk High predictability / Low volatility Medium Risk Moderate predictability / volatility High Risk Low predictability / High volatility
Total Expected Return Matrix Rating Low Risk Medium Risk High Risk Buy Over 15 % Over 20% Over 25% Accumulate 10 % to 15 % 15% to 20% 20% to 25% Hold 0% to 10 % 0% to 15% 0% to 20% Sell Negative Negative Negative Neutral ReturnsNot Applicable ReturnsNot Applicable ReturnsNot Applicable Not Rated Not Applicable Not Applicable Not Applicable Please Note Recommendations with “Neutral” Rating imply reversal of our earlier opinion (i.e. Book Profits / Losses). Indicates that the stock is illiquid With a view to combat the higher acquisition cost for illiquid stocks, we have enhanced our return criteria for such stocks by five percentage points.
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This report has been prepared for information purposes only and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the material. The information, on which the report is based, has been obtained from sources, which we believe to be reliable, but we have not independently verified such information and we do not guarantee that it is accurate or complete. All expressions of opinion are subject to change without notice.
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