Albert David - Potential Bagger?


(bbbhutra) #1

Albert David Ltd (ADL), a part of the well-known Kolkata based ‘House of Kotharis’ is distinguished in the field of manufacturing Pharmaceutical Formulations, Infusion Solutions, Herbal Dosage Forms, Bulk Drugs, Disposable Syringes & Needles.

It made a modest start in 1924 with a single manufacturing facility. Today, it has three manufacturing units located in Kolkata in West Bengal, Ghaziabad in U.P. and Mandideep in M.P. Its Kolkata plant is USFDA approved whereas the other two plants are WHO CMP & ISO 9002 certified. Some of its bulk drugs are also certified by the UK and the European Council.

ADL has a strong presence in various drug therapeutic classes like Immunomodulators, Vitamins & Nutritional Supplements, NSAIDs, Apetite Stimulants, Liver Protective, Anti-Ulcerants, Laxatives, Anti-Arthiritic Preparations, Muscle Relaxants and Adaptogenics among others. In the current year, it introduced new formulations in segments like anti-asthmatics, anti-ulcerants, another proton pump inhibitor and nutritional supplements. It also plans to venture into the pre-probiotic, infertility and nutraceuticals market.

With an extensive network of 1600+ stockists, ADL’s products are available all across India. It also has a presence in South East Asia, Africa, Middle East, Europe, USA and Latin America, covering approximately 35 countries.

The Company expects to achieve a turnover of Rs.400 crore in FY17. Its market cap is closer to Rs.200 crore, which is cheap when compared to other small-cap and mid-cap pharma companies which trade at a market cap:sales ratio of between 2x to 3x as against ADL’s 0.5x. It reported an EPS of Rs.15 in H1 FY16 and is trading at a P/E of 11x if we annualized the performance.

ADL has a small equity capital of Rs.5.71 crore supported by reserves of Rs.130 crore. The promoters hold 60.9% of the equity capital and the balance is held by the investing public.

Recently, the Company sold one of its brands ‘Actibile’ to Zydus Healthcare for Rs.55 crore. With a market cap of just Rs.177.7 crore and one of its brands reaping Rs.55 crore, the Company has made me take a tracking position in the stock.


(shunz) #2

this is an exceptional item. yet company has added this to its CFO. is this ok or an instance of aggressive accounting?


(Hardik) #3

That’s an interesting find.

Few Points:

  1. Sales for FY17 will be muted. The company in its FY16 AR has mentioned: “The Year of 2016-2017 will be very challenging as the competition will grow more fierce in this highly regulated market.” Selling of Actibile will contribute to this as it constituted around 5% of total sales.

  2. The operating margin seems to be sustainable at around 9-10%. Net profit margin (excl. exceptional item) for FY16 has reduced significantly to around 2.25% from an average of 4.30% in previous 4 years.

  3. The company has been consistently generating FCF and has shared them with shareholders as dividends.

  4. The company has not diluted equity in past 10 years which is a good sign. They have been able to fund capex through internal accruals and debt, which also they have significantly reduced from 42 Cr in 2014 to 20 Cr. in 2016. This has improved their short-term credit rating by CRISIL from A2+ to A1 and reaffirmed long-term credit rating of A-/positive.

  5. No succession plan in place. Age of all KMP’s is above 63. Could this be the reason for selling "Actibile’?

Can someone who understand pharma throw some light on the prospects of the company and industry considering Albert David’s products? Also, I could not find capacity utilisation for their 3 plants in AR. Need to dig deeper but if someone has this information then please share.

Discl.: Not invested.
P.S.: INDIANIVESH CAPITALS LTD. (Daljeet Kohli) has bought 19866 shares on 31/03/2016.


#4

No growth here. It is pretty old company. If company is forced to sell pieces of operating biz it is not something great unless they have a game plan to invest in high growth areas.


#5

i have been on their Mandideep factory twice. The unit has huge scalability as well as land area but the management seems to have completely forgotten about this unit. Once a best factory in that region, it is currently running under capacity and barely breaking even. I do not follow this company but i think it has huge potential provided the mngt takes on a more agressive outlook. Else the company could stagnate hereforth.
Disclosure: My answer is based on only one of their three units.
I do have capacity utilisation and financials but not authorised to disclose.
Nor invested nor tracking.


(khs) #6

FYQ1 Results: http://www.bseindia.com/xml-data/corpfiling/AttachLive/4de8cf3b-feac-4c2f-a331-ee9e41ae9e4b.pdf

Not a good set of numbers. Sales down due to de-stocking


(sambandham82) #7

If sales is down only due to destocking, it should not be an issue as it is one-time event.

Can anyone clarify on destocking. Does it mean distributors and retailers dont buy from company but company still manufactures and keep it as finished goods (or) company itself dont manufacture in order to reduce current inventory to negligible amount ?


(Rohan) #8

The company might be in for better times and is worth a look now. Last quarter results were quite positive showing a PAT of 5 cr+ . They have appointed a new CEO who has worked with good companies in the past .

  1. Reducing employee costs - He has called out that his focus will be on improving employee productivity - increasing per employee sales throughput and maybe removing unnecessary staff - if unions are not a hindrance. This is visible in sales of last quarter where sales have gone up yoy by 20%+ and more importantly - employee costs have come down yoy. (Current employee costs are 28% of sales + compared to average below 20% for MNC and other domestic pharma companies). The new CEO has clearly said he will focus on this aspect of the business

  2. Closing down of Mandideep factory which was loss making. I think they sold only injectibles from here which were not making money. So that is good for the bottom line ( with little impact on the top line)

  3. Bottomline can improve significantly and if growth also comes back - that is the icing on the cake

If anyone has more information - would love to hear

Disc : Invested at market cap of Rs.240 Crores (currently it is 10% lower)


(Vijayk) #9

Mr. Parmar seems to have been true of his word.

Q4 delivered PBT of 13 crores and Mandideep plant has been put up for sale- mentioned in notes results.
Co is having 70 cr cash on books…and plant can fetch another 40-50 crores.
Mkt cap is 250 crs only.
Seems focus on growth from this yr onwards.

In terms of valuations, this is at 0.7 mkt cap to sales, and EV/EBITDA is unbelievably low!

The last 10 yr dividend payout track record is very good which clears corporate governance as well!


(vinay ambekar) #11

It would appear that the company is going through a business restructuring process given the backdrop of the below:

  • appointing an experienced industry professional as CEO in Jan’17 and elevating him as MD&CEO in Apr 18,
  • taking decision of closing Mandideep plant which used to manufacture syringes and needles - a very competitive industry with not much special skills/expertise required, no brand value, less sales contribution to overall sales of the company, loss making for the company,
  • which results in focus on the core pharma drugs/formulations business
  • attractive cash balances, and company’s potential to generate good operational cashflows (see the receivables, payables and inventory levels of fy18 vs fy17)
  • these cash balances provide ready capital for growth, if management decides to focus on it
  • company sold a brand contributing about 15cr of sales for 55cr, implying (probably) that the brands they have retained are more valuable

The quarterly sequential numbers are interesting. The company has given break up of financials from continuing operations (CO) (from Sep quarter). It is expected that the loss from discontinued operations (DO) will eventually cease and hence the numbers from continuing operations should be focused on.

I have excluded other income from calculations with assumption that if the company focuses on growth, much of the capital employed will come from the ready cash available, and hence other income would reduce (assuming that all the other income is from cash balances, which is not the case if you see breakup of OI from FY16 and 17 AR - however conservatively, they have been taken out of the calculations).

A couple of points stand out:

  • Sales turnover from CO (adjusted for excise duty) have been decreasing over last 3 quarters
  • Margins in last 3 quarters have been a little erratic.

Views welcome. Have invested in this.


(Vijayk) #12

That’s quite good. Seems he got 100% control plus will stay for a long time as well!