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Vivimed Labs Ltd Vivimed Labs Ltd. BUY Target Price ` 468 CMP ` 343 FY14 PE 5.5x Index Details We initiate coverage on Vivimed Labs Ltd as a BUY with a Price Sensex 18,154 Objective of ` 468 (target 7.5x FY14 EPS). At CMP of ` 343, the stock is Nifty 5,522 trading at 6.0x and 5.5x its estimated earnings for FY13 & FY14 representing a potential upside of ~36% over a period of 24 months. BSE 100 9,568 Vivimed Labs Ltd is a diversified global company with a unique Industry Pharma portfolio of products in the Specialty Chemicals and Pharmaceuticals categories. Niche product portfolio in specialty chemicals coupled with Scrip Details significant inorganic growth through its recent acquisitions in the Mkt Cap (` cr) 348 pharma space should help the company post an earnings growth of BVPS (`) 194 31.7% CAGR over the period FY11 to FY14. O/s Shares (Cr) 1.4 Niche product portfolio and expansions to drive future growth AvgVol Lacs) 0.7 52 Week H/L 354/213 The matured Home and Personal care (H&PC) global markets are expected to Div Yield (%) 0.6 grow at CAGR of 3.2% to USD 368 bn by 2015 while in India the H&PC markets are expected to grow at a faster pace of 12.2% to USD 8 bn by 2015. Vivimed FVPS (`) 10.0 being well embedded as a global quality supplier of active ingredient to the H&PC industry is best placed to benefit from this growth. We expect Vivimed’s overall Shareholding Pattern revenues to grow at a CAGR of 39.9% to ` 1139.9 crore over the forecast period of Shareholders % FY11-14 with 50.0% of the revenues coming for the specialty chemicals product portfolio and the balance from the capacity expansions and inorganic growth in the Promoters 43.6 pharmaceutical space. DIIs 1.6 FIIs 18.2 Recent acquisitions to fuel revenue growth Public 36.6 STOCK POINTER In a strategic move, to enhance presence across the value chain and hasten entry Total 100 to the regulated markets (which generally has a 36-48 months penetration lead time), Vivimed acquired Uquifa, a 75 year old API and intermediates manufacturing Vivimed vs. Sensex company. Considering Vivimed’s, strong track record of successful acquisitions, we expect the company to effectively leverage these acquisitions and add value. Besides Uquifa, Vivimed has also acquired two small formulation companies Klar Sehen Pvt Ltd & Octtantis Nobel Labs for a consideration of ` 24 crore and ` 5 crore, respectively. These acquisitions would help Vivimed reduce costs by achieving manufacturing synergies and expand sales and profitability by increasing market and client penetration. We expect, Vivimed to earn revenues to the tune of ` 352 crore in FY14 from these acquisitions. Key Financials (` in Cr) Net EPS Growth RONW ROCE EV/ Y/E Mar EBITDA PAT EPS P/E (X) Revenue (%) (%) (%) EBITDA(X) 2011 416.0 84.1 48.8 48.0 - 24.8 16.4 7.1 11.9 2012E 636.2 126.5 58.9 42.3 -12.0 13.0 14.8 8.1 7.9 2013E 982.1 176.7 91.6 57.1 35.0 16.9 16.6 6.0 5.7 2014E 1139.9 205.5 111.6 62.4 9.3 17.2 17.5 5.5 4.9 th - 1 of 16 - Thursday 16 Feb, 2012 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. Significant entry barriers to ensure limited competition leading to sustainability of revenues In the active ingredients market where product quality has precedence over price, becoming a preferred supplier to global majors is a strenuous and prolonged process. Vivimed with its quality offering has established strong relationships with global majors and over time has embedded itself within these multinationals and now is a supplier across a wide range of products. Valuation At the CMP of ` 343, Vivimed is trading at 6.0x and 5.5x its estimated earnings for FY13 and FY14. We initiate coverage on Vivimed Labs Ltd as a BUY with a Price Objective of ` 468 (7.5x FY14 EPS) over a period of 24 months. We have valued the stock at 36% premium to its historical average valuation of 5.5x considering the robust product portfolio and the recent acquisitions. Vivimed’s earnings are expected to grow at a 31.7% CAGR over the forecast period FY11-14 which is far ahead of the sector’s growth. Post the integration of the acquisitions, we expect Vivimed to be re-rated considering its enhanced global presence and broadened product portfolio. Though, mounting debt remains an overhang on the stock. - 2 of 16 - Thursday 16th Feb, 2012 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. Company background Vivimed was established in 1989 as a single product (VIV-20) and single location company. Since then the company has grown by leaps and bounds to emerge as a preferred supplier of several key ingredients to MNCs in the specialty chemicals & pharmaceutical segments. In the specialty chemical division, Vivimed is engaged in the manufacturing and marketing of active ingredients within the Home & Personal Care products, and Industrial care products. While, in the pharmaceutical division, the company provides contract manufacturing services as well as undertakes manufacturing and marketing of branded formulations. In addition, Vivimed through timely acquisitions of James Robinson, Harmet International as well as the recent acquisition of Uquifa, has maintained its growth trajectory as well as further enhanced its presence in the global markets. Vivimed Labs- Business Organization VIVIMED LABS Specialty Pharmaceuticals Chemicals CRAMs Formulations APIs Active Industrial Ingredients Care Uquifa Vivimed Labs India Prod.,Sales and (Prod, Dist & R&D) Klar Sehen Prod & Marketing Marketing Vivimed Labs (Marketing &Distribution) Creative Healthcare Octtantis Nobel Vivimed Labs UK (Prod & Dist) Distribution (Sales, Marketing and R&D) Vivimed Labs USA (Production, Sales and R&D) Source: Vivimed, Ventura Research - 3 of 16 - Thursday 16th Feb, 2012 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. Headquartered in Hyderabad, Vivimed operates out of 9 manufacturing facilities (6 domestic and 3 overseas), 3 R&D facilities (1 domestic and 2 overseas). It has a customer base spread across 50 countries with SBUs based in America (Vivimed Labs USA Inc) and Europe (Vivimed Labs Europe) along with a marketing office in China. Manufacturing Plants of Vivimed Labs Plant Location Manufacturing Details Bidar Northern Karnataka Specialty Chemicals Sunscreens, Anti Microbial and Preservatives Bonthapally Hyderabad Specialty Chemicals Home & Personal Care actives Jeedimetla Hyderabad Formulation and R&D Dosage formulations Haridwar Uttarakhand Formulations Sterile products - Small Volume Parentals Kashipur Uttarakhand Formulations Non-Sterile Syrups, tablets, Capulses and dry powders. Cuernavaca Mexico APIs Acquired through Uquifa Acquisition Sant Celoni Spain APIs Acquired through Uquifa Acquisition Llica de Vall Spain APIs Acquired through Uquifa Acquisition Chouttuppal* Hyderabad Formulations Tablets & Capsules Srikakulam** AP SEZ Synthetic organic chemicals Source: Vivimed, Ventura Research Niche product portfolio and expansions to drive future growth The matured Home and Personal Care (H&PC) global markets are expected to grow to USD 368 bn by 2015 while the Indian H&PC markets are expected to grow at a faster pace of 12.2% to USD 8 bn by 2015. Vivimed being well embedded as a global quality supplier of the active ingredient to the H&PC industry is best placed to benefit from this growth. We expect Vivimed’s overall revenues to grow at a CAGR of 39.9% to ` 1139.9 crore over the forecast period of FY11-14 with 50.0% of the revenues coming for the specialty chemicals product portfolio and the balance from the capacity expansions and inorganic growth in the pharmaceutical space. Revenue and Profitability trend Rs. Crore (%) 1200 25% Triclosan Triclosan CaGp 1000 20% Triclosan CaGp Avobenzone 800 CaGp Avobenzone Climbazole Ben 4 Triclosan Avobenzone Climbazole 15% TCC Triclosan CaGp Ben 4 Starcat Triclossan 600 Climbazole CaGp Avobenzone TCC ZnPTO CaGP Ben 4 10% Avobenzone Climbazole TCC Starcat SAP* 400 ZnPTO 200 5% 0 0% FY10 FY11 FY12E FY13E FY14E Revenue EBIDTA Margin(%) PAT Margin(%) Source: Vivimed, Ventura Research Avis Ben-4 Avis Dantuff-z Avis Avis Ben-4 Ben 4 Ben 4 Dantuff-z Etone Etone Co-Guars Vivinol - 4 of 16 - Thursday 16th Feb, 2012 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page. Presence in North- East, Bihar & AP 150 MRs Strong Distribution Reach KSPL Octtantis 50 Trade Nobel Labs Specialty chemical business - a major contributor to growth Led by ` 25 crore worth of expansions at its existing two specialty chemical plants, we expect the specialty chemical division to grow at a three year CAGR of 21.7% to ` 570.3 crore by FY14. Vivimeds portfolio of active ingredients caters to nearly 75% of the global H&PC market (USD 268 bn, 3.2% CAGR) and with these enhanced capacities the company is expected to benefit immensely. Specialty Chemicals-Revenue and EBITDA Margin Rs. Crore (%) 600 25 500 20 400 15 300 10 200 100 5 0 - FY11 FY12E FY13E FY14E Revenue EBIDTA Margin RHS (%) Source: Vivimed, Ventura Research H&PC Products dominates the specialty segments business 1% 2% 1% Hair Care 6% Pharmace Antimicrobles 6% 26% uticals Sun Care 22% Intermediaries 9% Oral Care Photohromics 13% Other Chemicals Specialty 18% Imaging Chemicals 78% Skin Care 18% Preservatives Source: Vivimed, Ventura Research - 5 of 16 - Thursday 16th Feb, 2012 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
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