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Recommend BUY
CMP 296.25
Target Price 326.00
ISIN: INE028B01011 AUGUST 31st
, 2013
SHARON BIO-MEDICINE LTD. Q4 FY13
STOCK DETAILS
Sector Pharmaceuticals
BSE Code 532908
Face Value 10.00
52wk. High / Low (Rs.) 439.00/290.00
Volume (2wk. Avg ) 8824
Market Cap ( Rs in mn ) 3127.51
Annual Estimated Results (A*: Actual / E*: Estimated)
Years FY13A FY14E FY15E
Net Sales 10594.96 12713.95 14493.91
EBITDA 1209.96 1413.04 1602.81
Net Profit 541.89 620.30 696.00
EPS 51.33 58.76 65.93
P/E 5.77 5.04 4.49
Shareholding Pattern (%)
1 Year Comparative Graph
SHARON BIO-MEDICINE BSE SENSEX
SYNOPSIS
Sharon Bio-Medicine Ltd is a pharmaceutical
company which engaged in the manufacture of APIs
& Pharma Intermediates since 1995.
The company registered total revenue of Rs. 3225.42
million, up by 54.27% versus Rs. 2090.76 million in
the corresponding quarter last year.
During the quarter, the company has posted robust
growth of Net Profit and it is increased by 22.32% to
Rs. 144.92 million.
EBITDA increased by 31.49% to Rs. 325.34 millions
as against Rs. 247.43 millions in the corresponding
period of the previous year.
During the year 2012-13, Sharon achieved its
turnover by 35% to Rs. 10594.96 million as against
Rs. 7857.29 million in previous year.
Sharon Bio-Medicine has set up a Genotoxicity
Laboratory on the line of Toxicology Lab under the
name of SA-FORD at Taloja near Navi Mumbai.
The Company's Toxicology Laboratory namely SA-
FORD, has also got the approval from SENASA a
Toxicology approval authority of Govt of Argentina.
Reported EPS of the company stood at Rs.13.73 a
share during the quarter, registering 22.32%
increase over previous year period.
Net Sales and PAT of the company are expected to
grow at a CAGR of 23% and 17% over 2012 to 2015E
respectively.
PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND
COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%)
Sharon Bio-Medicine Ltd 296.25 3127.51 51.33 5.77 1.28 0.00
Lupin Ltd 800.20 358337.60 29.34 27.27 7.39 200.00
Strides Arcolab Ltd 877.15 51839.70 23.31 37.63 3.78 20.00
IPCA Laboratories Ltd 619.85 78224.50 28.54 21.72 4.98 200.00
Recommendation & Analysis - ‘BUY’
Today, Sharon has got best of the production facilities and its products and would like to sell the products
worldwide. For Q4 FY13, Sharon Bio-Medicine Ltd posted a 54.27% yoy growth in net sales to Rs. 3225.42
millions. During the year 2012-13, Sharon achieved its turnover by 35% and also the margins. Sharon is
increasing its capacity after doing the expansion in Dehradun as well as in Taloja. In future, Sharon would like to
increase its sales market size not only in India but also abroad including United State. The company has reported
a net profit of Rs.144.92 million against Rs.118.48 million in the corresponding quarter ending of previous year,
an increase of 22.32%. The Company's Toxicology Laboratory namely SA-FORD, has also got the approval from
SENASA a Toxicology approval authority of Govt of Argentina. In future, the company will try to get more and
more Toxicology Study approvals from other countries so as to boost the revenue of the company.
During the last year, the Company has been audited by many countries and they have certified their plants fit for
sale of its products. Mainly, these countries are Australia, Canada, and Korea. All these certifications not only
increase the business and margins of the Company but also increase the valuation of the plants and company
management. This leads to overall valuation of the Company in future. India's pharmaceutical industry is on good
growth trajectory and is likely to be among the top 10 global markets in value terms by 2020. The industry has
the potential to grow at an accelerated 15-20 per cent CAGR for the next 10 years to reach between USD 49
billion to USD 74 billion in 2020. Over FY2012-15E, we expect the company to post a CAGR of 23% and 17% in its
top-line and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘Sharon Bio-Medicine Ltd’ with a
target price of Rs. 326.00 on the stock.
FINANCIAL HIGHLIGHTS STANDALONE
Results updates- Q4 FY13,
Sharon Bio-Medicine Ltd is a pharmaceutical
company which commenced as a manufacturing of
Pharma Intermediates in 1995 in India, reported its
financial results for the quarter and year ended 30th
June, 2013.
Months Jun-13 Jun-12 % Change
Net Sales 3225.42 2090.76 54.27
PAT 144.92 118.48 22.32
EPS 13.73 11.22 22.32
EBITDA 325.34 247.43 31.49
The company net profit jumps to Rs.144.92 million against Rs.118.48 million in the corresponding quarter
ending of previous year, an increase of 22.32%. Revenue for the quarter rose 54.27% to Rs. 3225.42 million from
Rs.2090.76 million, when compared with the prior year period. Reported earnings per share of the company
stood at Rs.13.73 a share during the quarter, registering 22.32% increase over previous year period. Profit
before interest, depreciation and tax is Rs.325.34 millions as against Rs.247.43 millions in the corresponding
period of the previous year.
Expenditure :
During the quarter total expenditure rose by 58 per
cent mainly on account of increase in Consumption
of Raw Materials along with consideration of
Purchase of Trading Goods. Total expenditure in Q4
FY13 was at Rs 2939.97 million as against Rs.
1866.23 million in Q4 FY12. Consumption of Raw
Materials is at Rs. 2629.78 millions against Rs.
1540.96 millions in the corresponding period of the
previous year. Staff cost was at Rs. 50.90 million and
Purchase of Trading Goods is Rs. 560.30 millions in
Q4 FY13 are the primarily attributable to growth of
expenditure.
Latest Updates
• SA-FORD which is a division of Sharon Bio-Medicine Ltd has set up a Genotoxicity Laboratory on the line of
Toxicology Lab under the name of SA-FORD at Taloja near Navi Mumbai. With the addition of Genotoxicity
Laboratory, Sharon hopes to get better business of Toxicology testing in future from India & Abroad.
• The Company's Toxicology Laboratory namely SA-FORD, which is approved by Organization of Economic
Development and Cooperation (OECD) countries, has also got the approval from SENASA a Toxicology
approval authority of Govt of Argentina. With this approval the Company can do toxicology studies of various
chemicals including agricultural products of Argentine Companies and Govt. bodies. In future, company will
try to get more and more Toxicology Study approvals from other countries so as to boost the revenue of the
company.
• The Company's Toxicology Laboratories is an independent cost centre and is approved by Department of
Science & Technology, Govt of India. Govt. of India has approved Good Laboratory Certificate to SA-FORD
which is valid as per OECD Countries - GLP.
• During the year 2012-13, Sharon is increasing its capacity after doing the expansion in Dehradun as well as in
Taloja.
• CARE has assigned 'CARE A-' (Single A minus) rating for the Long Term Bank facilities and 'PR1' (PR One)
rating for the Short Term Bank facilities of the Sharon Bio-Medicine Ltd.
Company Profile
Sharon Bio-Medicine Ltd is a pharmaceutical company which commenced as a manufacturing of Pharma
Intermediates in 1995. In the year 2000 the company set up a R&D Block to carry out Process synthesis for API’s
& Intermediates. The company is involved in manufacturing of Intermediates, Active Pharmaceutical Ingredients
and Finished Dosage Sharon also has a division operating under the name of SA-FORD, which is OECD GLP
certified; specialize in Pre-Clinical and Toxicology studies on animal.
Sharon is predominantly known for its strengths in development & manufacturing of Pharmaceutical products in
category of Intermediates & Actives. In 2007 it commissioned its first finished products manufacturing facility at
Dehradoon, Uttarakhand, India.
With setting and successful commercialization of the solid dosage formulation facility at Dehradun, its
formulations are now being marketed in Africa, Latin America and other markets. The company’s Unit-1 API
plant is compliant with ISO 9001:2000 and its Formulation plant is approved by WHOGMP and had been certified
by various authorities such as INVIMA, SFDA etc. Growing at around 50% year on year Sharon now has an annual
turnover of over $130 million, a work force of over 500 personnel, operations spanning across seven locations in
India & one overseas location and a market presence in over 45 countries.
Products
The products of the company are listed as below:
• API’s & PELLETS
• Intermediates
• Formulations
Research & Development
• Toxicology Studies
SA-FORD, A division of Sharon Bio-Medicine Ltd. offers various toxicology services related to animals as per
international rules and regulations (OBCD GLP EPA, ICH, and ISO 10993).
• Intermediates & Actives
Fully equipped Process development Labs & Analytical Labs are managed by highly experienced team of
professionals. The combined expertise in Chemistry, Analytical method development and engineering
provide the necessary advantage to complete projects within short time spans. These labs are complimented
By Kilo-Labs & Commercial-Scale Plants Which Operate As Per Cgmp.
• Finished Dosage Forms
Sharon’s core competency is development of a range of Tablets and Capsules including modified release
products. The laboratory is well equipped with senior scientists to handle technology transfer projects from
the company esteemed partners and carry out variations to suit its manufacturing equipment.
• Regulatory Affairs
A centralized regulatory affairs department at Sharon coordinates with the Development Labs & the
manufacturing facilities for all product relevant data. The company expertise lies in compilation &
verification of DMF & Dossiers as per specific country regulatory requirements.
Global Presence
In the International Markets, Sharon has established a name in APIs and Intermediates serving markets in the
growing Latin America, Middle East, South East Asia and SAARC countries. To name a few it is active in Jorden,
Syria, Egypt, Israel, Bangladesh, Pakistan, Thailand, Indonesia, Malaysia, Russia, Ukrain & Vietnam.
Plant Locations
Based on intended market of the API and ensuring levels of GMP required, Sharon has 2 API manufacturing
facilities located at M.I.D.C. Taloja, Navi Mumbai. Both facilities (Unit 1 – W34, Unit 2 – L6) are capable of
handling range of reactions such as Alkylations, Amination, Benzoylation, Chlorosulphonation, Condensation,
Friedel-Crafts Acylation, Grignard Reactions, Halogenation, Hoffmann Reaction, Nitration, Oxidations,
Reductions, Sulphonation.
Subsidiary company
• Yusur International FZE, UAE (Formerly known as 'Sharon International FZE')
Financial Highlight STANDALONE (A*- Actual, E* -Estimations & Rs. In Millions)
Annual Profit & Loss Statement for the period of 2012 to 2015E
Value(Rs.in.mn) FY12A FY13A FY14E FY15E
Description 12m 12m 12m 12m
Net Sales 7857.29 10594.96 12713.95 14493.91
Other Income 9.13 8.86 8.15 8.48
Total Income 7866.42 10603.82 12722.10 14502.38
Expenditure -6916.46 -9393.86 -11309.06 -12899.58
Operating Profit 949.96 1209.96 1413.04 1602.81
Interest -337.15 -427.72 -504.71 -585.46
Gross profit 612.81 782.24 908.33 1017.34
Depreciation -92.65 -120.35 -144.42 -167.53
Profit Before Tax 520.16 661.89 763.91 849.82
Tax -90.31 -120.00 -143.62 -153.82
Net Profit 429.85 541.89 620.30 696.00
Equity capital 105.57 105.57 105.57 105.57
Reserves 1727.43 2333.70 2954.00 3650.00
Face value 10.00 10.00 10.00 10.00
EPS 40.72 51.33 58.76 65.93
Quarterly Profit & Loss Statement for the period of 31st
Dec, 2012 to 30th Sep, 2013E
Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E
Description 3m 3m 3m 3m
Net sales 2488.42 2714.31 3225.42 3289.93
Other income 2.53 3.02 1.28 1.34
Total Income 2490.95 2717.33 3226.70 3291.27
Expenditure -2195.38 -2394.19 -2901.36 -2941.20
Operating profit 295.57 323.14 325.34 350.08
Interest -107.85 -114.53 -107.31 -118.04
Gross profit 187.72 208.61 218.03 232.04
Depreciation -28.04 -31.09 -38.61 -42.47
Profit Before Tax 159.68 177.52 179.42 189.56
Tax -27.78 -32.29 -34.50 -36.02
Net Profit 131.90 145.23 144.92 153.55
Equity capital 105.57 105.57 105.57 105.57
Face value 10.00 10.00 10.00 10.00
EPS 12.49 13.76 13.73 14.54
Ratio Analysis
Particulars FY12A FY13A FY14E FY15E
EPS (Rs.) 40.72 51.33 58.76 65.93
EBITDA Margin (%) 12.09% 11.42% 11.11% 11.06%
PBT Margin (%) 6.62% 6.25% 6.01% 5.86%
PAT Margin (%) 5.47% 5.11% 4.88% 4.80%
P/E Ratio (x) 7.28 5.77 5.04 4.49
ROE (%) 23.45% 22.22% 20.27% 18.53%
ROCE (%) 16.15% 14.98% 15.86% 16.31%
Debt Equity Ratio 2.52 2.64 2.21 1.89
EV/EBITDA (x) 8.09 7.85 6.95 6.33
Book Value (Rs.) 173.63 231.06 289.81 355.74
P/BV 1.71 1.28 1.02 0.83
Charts
Outlook and Conclusion
� At the current market price of Rs.296.25, the stock P/E ratio is at 5.04 x FY14E and 4.49 x FY15E
respectively.
� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.58.76 and
Rs.65.93 respectively.
� Net Sales and PAT of the company are expected to grow at a CAGR of 23% and 17% over 2012 to 2015E
respectively.
� On the basis of EV/EBITDA, the stock trades at 6.95 x for FY14E and 6.33 x for FY15E.
� Price to Book Value of the stock is expected to be at 1.02 x and 0.83 x respectively for FY14E and FY15E.
� We recommend ‘BUY’ in this particular scrip with a target price of Rs.326.00 for Medium to Long term
investment.
Industry Overview
India is now among the top five pharmaceutical emerging markets globally and is a front runner in a wide range
of specialties involving complex drugs' manufacture, development, and technology. The Indian pharmaceutical
industry is a highly knowledge based industry which is growing steadily and plays a major role in the Indian
economy. As a highly organised sector, the number of pharmaceutical companies is increasing their operations in
India. The industry is expected to touch US$ 35.9 billion by 2016.
The Department of Pharmaceuticals has prepared a 'Pharma Vision 2020' document for making India one of the
leading destinations for end-to-end drug discovery and innovation. The department provides requisite support
by way of world class infrastructure, internationally competitive scientific manpower for pharma research and
development (R&D), venture fund for research in the public and private domain and such other measures.
Sector Structure/ Market Size
The domestic pharma market has reported total sales of Rs 6,370 crore (US$ 1.03 billion) in the month of May
2013, registering a growth of 6.8 per cent, as per IMS Health. The major factors responsible are increasing sales
of generic medicines, continued growth in chronic therapies and a greater penetration in rural markets.
The cumulative drugs and pharmaceuticals sector has attracted foreign direct investments (FDI) worth US$
11,304.91 million during April 2000 to April 2013, according to the latest data published by Department of
Industrial Policy and Promotion (DIPP).
Growth
The Indian pharmaceutical industry would continue to experience strong growth as structural growth drivers
continue to remain impervious. The industry is expected to revert a growth of 10-12 percent in 2013-14,
according to a study by ICRA. It is also expected that in-organic investments will gain momentum in the medium-
term as companies plan to create stronger presence in emerging markets and build expertise in select therapy
areas.
Among the top 10 companies, Cipla with total sales of Rs 302 crore (US$ 49.13 million), Sun Rs 297 crore (US$
48.32 miliion), Alkem Rs 222 crore (US$ 36.12 million) and Sanofi Rs 186 crore (US$ 30.26 million) were the
fastest growing corporations for the month of May 2013.
Exports
Pharmaceutical exports from the country during 2012-13 stood at US$14.6 billion, up from US$13.2 billion the
previous year, as per P V Appaji, Director General, Pharmexcil.
The Ministry of Commerce has targeted Indian pharma sector exports at US$ 25 billion by 2016. The Government
has also planned a ‘Pharma India’ brand promotion action plan spanning over a three-year period to give an
impetus to generic exports.
In order to boost the export capability, Export-Import Bank of India (Exim Bank), has decided to expand the
scope of its finance to pharmaceutical companies for extended repayment periods. Eligible export oriented
companies can avail finance from Exim Bank for a maximum repayment period of 10 years with a moratorium of
up to 36 months.
“Of the export markets, Indian pharma will focus on the US market which presents significant opportunities for
the next two years for generics, due to patent cliffs and recent changes in healthcare policies,” said the India
Ratings report on outlook for Indian pharmaceuticals for 2013.
Generics
Generics will continue to dominate the market while patent-protected products are likely to constitute 10 per
cent of the pie till 2015, according to McKinsey report 'India Pharma 2015- Unlocking the potential of Indian
Pharmaceuticals market'.
Global demand for generic drugs from Indian companies is booming as developed nations battle rising healthcare
costs. As a result, generics companies are increasingly focusing on expanding presence in relatively under-
penetrated markets (i.e. France, Spain & Italy), branded generic markets of East Europe and niche areas like
complex generics, OTCs etc.
Diagnostics Outsourcing/ Clinical Trials
India is fast becoming the preferred destination for high-end pathology and diagnostic services. The highly
fragmented diagnostics and pathology labs market in India is pegged at US$ 3.4 billion, according to a report by
PricewaterhouseCoopers.
An increasing number of hospitals from the UK, US, Middle East and neighbouring countries are tying up with
Indian diagnostic centres to conduct laboratory tests. The Indian diagnostic services market is expected to grow
at a compound annual growth rate (CAGR) of around 26 per cent during 2012-2015 on back of huge investments,
fast expansion into tier II & III cities, and strong government support strengthening the healthcare infrastructure
in the country.
According to RNCOs research report “Booming Clinical Trials Market in India”, the number of clinical studies by
domestic and global players has sharply risen. India, over the last decade, has developed significant capabilities
in clinical trials, along with certain capabilities in project management and data management.According to
RNCOs research report “Booming Clinical Trials Market in India”, the number of clinical studies by domestic and
global players has sharply risen. India, over the last decade, has developed significant capabilities in clinical
trials, along with certain capabilities in project management and data management.
Investments
Some of the investments in the sector are:
• Piramal’s healthcare vertical plans to invest US$ 2.5 million to upgrade their antibody drug conjugate
(ADC) manufacturing suites. The upgrade will give Piramal two commercial grade ADC suites at the
Grangemouth facility, while retaining clinical phase manufacturing capacity in other suites on-site
• Dr Reddy's Laboratories (DRL) has launched Donepezil Hydrochloride tablets in the US market following
the approval by the United States Food and Drug Administration (USFDA)
• US-based drug maker MSD has tied up with Mumbai-based Lupin to market MSD's 23-valent
Pneumococcal Polysaccharide Vaccine in India. Lupin would have a non-exclusive licence to market,
promote and distribute the vaccine under a different brand name
• Aurobindo Pharma, Natco Pharma and Glenmark have received approvals from the US Food and Drug
Administration (USFDA) to launch their migraine drugs in the US market
• Elder Pharmaceuticals has acquired UK-based Max Healthcare. The acquisition is through Elder's fully-
owned UK subsidiary, NutraHealth, and will mark the re-entry of Elder Pharma into the over-the-counter
(OTC) pharmaceutical category
• Zydus Group has launched LipaglynTM (Saroglitazar), a novel drug targeted for treating diabetic
dyslipidemia or hypertriglyceridemia in Type II diabetes. The drug has been approved for launch in India
by the Drug Controller General of India (DCGI)
Government Initiatives
The Foreign Investment Promotion Board (FIPB) has cleared seven FDI proposals for investment in the Indian
pharmaceutical companies. Currently, 100 per cent FDI in pharma sector is permitted through automatic
approval route in the new projects but the foreign investment in the existing pharma companies requires FIPB
approval.
In the Union Budget 2013-14, investment allowance of 15 per cent on new plant and machinery has been
allowed. The allowance is expected to increase investments in new projects while simultaneously providing tax
benefit to the industry.
In order to provide relief to the common man in the area of healthcare, a countrywide campaign in the name of
‘Jan Aushadhi Campaign’ has been initiated by the Department of Pharmaceuticals, Government of India, in
collaboration with the State Governments, by way of opening up of Jan Aushadhi Generic Stores in the
Government Hospitals by way of supply of generic medicines through Central Pharma Public Sector
Undertakings, to make available quality generic medicines at affordable prices to all.
Road Ahead
In spite of some recent adverse developments, with the support of Pharmexcil and the Government in the form of
Brand India Pharma project iPHEX, the sector would continue to grow and meet the healthcare requirements of
the developing world.
The country will see the largest number of merger and acquisitions (M&A) in the pharmaceutical and healthcare
sector, according to consulting firm Grant Thornton. A survey conducted across 100 companies has revealed that
one-fourth of the respondents were optimistic about acquisitions in the pharmaceutical sector.
The pharma companies such as Cipla, Ranbaxy, Dr Reddy's Labs and Lupin might soon be part of the
government's ambitious 'Jan Aushadhi' project. In an attempt to commercialise the project, the Government is
likely to rope in the private sector to bulk-procure generic drugs from them.
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale
of any financial instrument or as an official confirmation of any transaction. The information contained herein is
from publicly available data or other sources believed to be reliable but do not represent that it is accurate or
complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. This document is provide for assistance only and is not intended to be and must
not alone be taken as the basis for an investment decision.
Firstcall India Equity Research: Email – info@firstcallindia.com
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