Vivimed Labs Ltd Result Update: Q3 FY 12 C.M.P: Rs. 405.00 Target Price: Rs. 466.00 Date: March 24 th 2012 BUY Stock Data: SYNOPSIS Sector: Pharmaceutical Face Value Rs. 10.00 Vivimed Labs Ltd engages in the specialty chemicals & pharmaceuticals 52 wk. High/Low (Rs.) 413.00/212.50 Volume (2 wk. Avg.) 34000 businesses in India. BSE Code 532660 During the quarter ended, the robust Market Cap (Rs. in mn) 5643.27 growth of revenue is increased by 8.20% to Rs.928.50 million. Share Holding Pattern Vivimed Labs Ltd has acquired Uquifa, a 75-year-old manufacturer of pharma APIs and intermediates with operations in Spain and Mexico. Vivimed has offices in India, China, Europe & USA, with manufacturing 1 Year Comparative Graph facilities focused around Hyderabad city in India. Vivimed Labs has floated three overseas subsidiaries, either directly/ through its subsidiary companies. Net Sales and PAT of the company are expected to grow at a CAGR of 32% and 44% over 2010 to 2013E BSE SENSEX Vivimed Labs respectively. Years Net sales EBITDA Net Profit EPS P/E FY 11 3100.97 556.30 277.63 27.32 14.83 FY 12E 4034.73 815.85 395.91 28.41 14.25 FY 1 3E 4841.68 985.28 496.86 35.66 11.36 1 Peer Group Comparison Market Cap. Name of the company CMP(Rs.) (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Vivimed Labs 405.00 5643.27 27.32 14.83 2.84 20.00 Dr. Reddy’s Lab. 1674.00 28384.40 51.10 32.76 4.71 225.00 Cipla Ltd. 302.60 24296.40 13.03 23.22 3.68 140.00 Lupin Ltd. 506.20 22608.01 17.89 28.30 7.17 150.00 Investment Highlights Q3 FY12 Results Update Vivimed Labs announced a phenomenal rise in standalone net sales for the quarter ended December 2011. During the quarter, the profit of the company rose 4.20% to Rs 94.58 million from Rs 90.77 million in the same quarter previous year. Net sales for the quarter for the quarter surged 8.20% to Rs 928.50 million, while total income for the quarter jumped 8.20% to Rs 928.50 million, when compared with the prior year period. It posted earnings of Rs 6.79 a share during the quarter. Quarterly Results - Standalone (Rs in mn) As At Dec-11 Dec -10 %change Net sales 928.50 858.13 8.20% PAT 94.58 90.77 4.20% Basic EPS 6.79 8.93 (23.99%) 2 Break up of Expenditure Segment wise Revenue 3 Acquisition of Uquifa Spain and Uquifa Mexico Vivimed Labs Ltd has acquired Uquifa, a 75-year-old manufacturer of pharma APIs and intermediates with operations in Spain and Mexico. In a move to bring in strategic growth into its product mix and expand the footprint in Europe and the Americas, the Company has taken a measured stride with the acquisition of Uquifa Spain and Uquifa Mexico. Company Profile Vivimed Labs Ltd was originally incorporated as Emgi Pharmaceuticals & Chemicals Private Limited with Registrar of Companies of Karnataka, Bangalore & subsequently converted into a public limited company on April 21, 1994. The name of the company has been changed to Vivimed Labs Limited on April 22, 1997. The company was originally promoted by A. M. Rao. In 1989 Santosh Varalwar and Subhash Varalwar acquired Emgi Pharmaceuticals and Chemicals Limited and commenced manufacturing of bulk drugs in 1991. The company’s manufacturing unit is located at Bidar, Karnataka, where it was originally engaged in the manufacturing of Active Pharmaceutical Ingredients (APIs) and bulk drugs like Ibuprofen etc. However, due to downward price movement in the products of the company during 1995, it gradually moved over to manufacturing specialty chemicals and cosmetic ingredients like Triclosan, Avis etc. catering to global and domestic markets. The Specialty Pharma division of Vivimed is a merged entity of VVS Pharma and Creative Healthcare. The Specialty Pharma Division has its inherent strengths in drug delivery ad drug discovery. The division is focused on providing cures in oncology space, arthritis, syndrome X, macular degeneration, psoriasis and stress. Vivimed has offices in India, China, Europe and USA, with manufacturing facilities focused around Hyderabad city in India and across nearly 50 countries. The company is now set to expand its operations into the fast-emerging and highly demanding sector of Printable Electronics and Organic Semiconductors. 4 Vivimed Products Vivimed brands touch the lives of people around the world through its products segment in various areas with different ingredients within daily routine. Vivimed products are acknowledged in following ways: Oral care Maintaining good oral hygiene is an essential part of overall healthcare and well- being. Vivimed's products for Oral Care find applications in some of the most effective products in the market for good oral health-antibacterial for toothpaste and mouthwash, neutraceuticals for dental enamel protection. Sun care The most important skin-care products available for the prevention of wrinkles and skin damage are sunscreens. Exposure to damaging ultraviolet light from the sun's rays, UV-A or UV-B, accounts for 90% of the symptoms of premature skin ageing such as wrinkles and skin cancers. UV-A radiation (320-400nm) is linked with the loss of skin elasticity, wrinkling and premature ageing, whilst the more powerful UV-B radiation (290- 320nm) is linked to sunburn, cell damage and cancer risk. Skin care Vivimed's range of skin care ingredients covers active anti-wrinkle, anti-ageing compounds, anti-oxidants, skin-lightening actives and emollients. Proven care in a harsh world - the beauty of chemistry. Hair care Under the well-known Jarocol® trademark, Vivimed offers a full range of hair dye intermediates for use in permanent, semi-permanent and temporary colorants. They offer a variety of products, including anti-dandruff agents, UV absorbers, hair loss actives and guar gums for the formulation of shampoos, conditioners and styling products. 5 Thickeners and Conditioners Vivimed's range of speciality Co-Guar thickeners and conditioners is derived from natural extract of Guar bean. A range of cationic guar-gum products across a spectrum of pH and viscosity profiles cover many personal care and cosmetic applications; thickeners for hand and face creams, lotions, body washes and shower gels; stabilisers for shampoos and conditioners which build body for hair, improve combability and add bounce. Reversacol Photochromic Dyes Vivimed is a world leader in the development of innovative photochromic dyes. Under the Reversacol trade name, Vivimed manufactures and markets the most comprehensive range of patented, high performance dyes available in the world. This portion have 30 vibrant colors in their dye portfolio, including a unique selection of single-molecule, neutral grey photochromic dyes. Anti-Microbials & Preservatives Vivimed's range of effective and established anti-microbial actives finds uses in a wide range of applications from plastics additives through to anti-bacterial hand washes. Catering to the personal care markets and industrial sectors Vivimed provides effective preservatives for a wide range of formulations. Imaging Chemicals Vivimed is a major manufacturer of photographic chemicals used for areas of traditional photographic imaging technology such as medical and industrial X-ray imaging, consumer photography and litho-plate production for the graphic arts industry. 6 Financials Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) FY10 FY11 FY12E FY13E Description 12m 12m 12m 12m Net Sales 2125.97 3100.97 4034.73 4841.68 Other Income 0.00 0.00 0.00 0.00 Total Income 2125.97 3100.97 4034.73 4841.68 Expenditure -1716.35 -2544.67 -3218.88 -3856.39 Operating Profit 409.62 556.30 815.85 985.28 Interest -144.36 -176.31 -237.97 -271.28 Gross profit 265.26 379.99 577.89 714.00 Deprecation -43.99 -50.31 -82.97 -92.92 Profit Before Tax 221.27 329.68 494.92 621.08 Tax -55.84 -52.05 -99.01 -124.22 Profit After Tax 165.43 277.63 395.91 496.86 Equity capital 99.65 101.64 139.34 139.34 Reserves 1085.08 1348.82 1744.73 2241.59 Face value 10.00 10.00 10.00 10.00 EPS 16.60 27.32 28.41 35.66 7 Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E Description 3m 3m 3m 3m Net sales 1039.50 952.53 928.50 1114.20 Other income 0.00 0.00 0.00 0.00 Total Income 1039.50 952.53 928.50 1114.20 Expenditure -831.68 -740.69 -737.32 -909.19 Operating profit 207.82 211.84 191.18 205.01 Interest -58.65 -69.68 -51.96 -57.68 Gross profit 149.17 142.16 139.22 147.34 Depreciation -14.12 -24.79 -20.98 -23.08 Profit Before Tax 135.05 117.37 118.24 124.26 Tax -27.02 -23.48 -23.66 -24.85 Profit After Tax 108.03 93.89 94.58 99.41 Equity capital 101.64 124.44 139.34 139.34 Face value 10.00 10.00 10.00 10.00 EPS 10.63 7.55 6.79 7.13 8 Key Ratios Particulars FY10 FY11 FY12E FY13E No. of Shares(In Million) 9.97 10.16 13.93 13.93 EBITDA Margin (%) 19.27% 17.94% 20.22% 20.35% PBT Margin (%) 10.41% 10.63% 12.27% 12.83% PAT Margin (%) 7.78% 8.95% 9.81% 10.26% P/E Ratio (x) 24.40 14.83 14.25 11.36 ROE (%) 13.96% 19.14% 21.01% 20.87% ROCE (%) 17.03% 16.26% 21.01% 22.03% Debt Equity Ratio 1.25 1.57 1.27 1.06 EV/EBITDA (x) 9.85 7.40 6.92 5.73 Book Value (Rs.) 118.89 142.71 135.21 170.87 P/BV 3.41 2.84 3.00 2.37 Charts: Net Sales & PAT 9 P/E Ratio (x) Debt Equity Ratio 10 EV/EBITDA (x) P/BV 11 Outlook and Conclusion At the current market price of Rs.