Bliss GVS Pharma

Stock Opportunities
1

Bliss GVS Pharma Limited (BGPL) is engaged in the business of female contraceptives, soft pessaries and suppositories. The companyâs products can be divided into two categories â over-the-counter (OTC) and prescription drugs. It has a significant presence in most African markets, selling suppository formulations and anti-malaria formulations. In FY11, exports contributed over 95% of total revenues. It has its manufacturing unit located at Palghar, Maharashtra.

**Management **

S. N Kamath, managing director of the Rs 242-crore Bliss GVS Pharma, started as a salesman in his fatherâs medical shop in Mumbai. He decided to develop drugs when he was in Rwanda and came across a Chinese product for curing malaria. He followed his gut and developed a similar product â dihydroartemisinin. The drug clicked.

In 2006, Bliss Pharma â which was held by Kamath and his friend Gautam Ashra â was merged with Kamathâs privately held company GVS Pharma and became Bliss GVS Pharma. Its 2010-11 revenues were Rs 220 crore.

Bliss GVS Pharma sells in over 35 countries but nearly 90 per cent of its revenue comes from Africa. The company manufactures suppositories, pessaries, anti-malarial tablets, dry syrups, injectables and ointments. It has a portfolio of some 60 products in the anti-malarial segment. Its most popular drug is â Lonartâ, which is sold in African markets such as Ghana, Rwanda and Tanzania. Suppositories and pessaries is a niche segment with limited competition. Zydus Cadila is the only Indian rival in this segment.

The company is renowned for manufacturing and marketing a most unique product**‘Today’**which is a Vaginal Contraceptive, a safe female contraceptive aimed at furthering planned parenthood and is also an established method for preventing conception.Bliss also manufactures wide range of Pessary Formulations, Suppository Formulations, Calcium Preparations, Protein Powders, Iron Preparation, Antibiotics, Analgesic and Antipyretics, Respiratory, Anti-inflationary, Dermatological Preparations etc.

In 2009, Mr.S.N.Kamath, Promotor and Managing Director received a National Award from GOI in recognition of outstanding performance under medium enterprises segment. The company also received outstanding Export Performance award in 2008-09 from Pharmexcil.

KEY HIGHLIGHTS

**Entering newer markets **

The majority of BGPLâs revenues are earned through exports. In FY11, exports contributed ~95% of total revenues. The management is exploring new markets such as the UK, South Africa, Genoa and Latin America. Presence in diversified markets reduces the risk of slowdown in a particular market owing to recession or macroeconomic problems. In FY10, the company started supplying antimalarial and anti-fungal medicines in African markets, where there is huge demand for such products.

**On an expansion spree **

BGPL is expanding manufacturing capacity at the Palghar plant; the expansion is expected to be completed by September 2011. This plant will produce suppositories. The management is expecting approval from the UK drug regulator, the MHRA, for this plant. The company is also planning a capex of Rs 350-400 mn in FY12, for the development of its research and development centre.

**JV with a prominent Middle East player **

In FY10, BGPL signed a joint venture (JV) agreement with Kuwait Saudi Pharmaceutical Industries Co in Kuwait for establishing a suppository line manufacturing facility. With this JV, it is likely to be a prominent manufacturer of suppository formulations in the Middle East. Products in suppository formulations segment are rectol, vomitin, conlax, anomex, glycerin, etc.

Virtually a zero debt company

Bliss GVS Pharma is virtually a zero debt company. This scope of leverage is a big boost in its expansion plans in the future and given the quality of the management this leverage can be used to catapult the company into one of the most versatile Pharma companies in Africa & the MiddleEast.

**Strong Financial Performance & aggressive targets for FY12 **

The company has an excellent track record as far as financials are concerned.

This trend is likely to continue given the growth prospects of the company. The company is targeting a sale of about 250 crores by FY12. The margins are expected to target an EBIDTA of 25%-28% thereon normalizing for the next couple of years. Stock is currently trading at around 5 P/E, which is cheap for a pharma company.

Other Highlights

OPM% around 28% and NPM% around 19%

Debt free company

Steadily Increasing promoter holding. presently 64%

Asset Light business

90% of business is from anti malarial drugs and export to African countries

Company will be required to make higher tax provisions in future due to withdrawal of EOU benefits

Consistent Dividend paying company

Area of Concern

Debtors of almost 200 days. Need to understand this more since this is very abnormal. Also, even with such high debtors the company has remained virtually debt free. Needs to be investigated further as it can also point to some kind of window dressing. If the company is availing tax benefits, it is not very difficult to account for sales :slight_smile:

However, the company has maintained that all its exports are insured by ECGC and no there are no doubtful or bad debts

Views invited

2

if doing do well…why was the dividend reduced…given that their other income has soared in the first quarter…I assume they have enough cash on BL to maintain the dividend at a minimum.

-Pradeep

3

Dividend was not reduced. In fact it was increased. For FY10, the company paid 50% dividend and for FY11, it was 60% - 30% interim and 30% final

4

The story of Bliss GVS Pharma is too good. The Financials are excellent. In the last 10 years the stock has appreciated by 100 times. Sometimes I fear, is it “too good to be true”. I have gone through the accounts numerous times, and have not been able to find any cockroaches. Due to 100% EOU tax benefits being withdrawn, and probably DEPB facility being discontinued, net profit will face some pressure in near future. Otherwise, appears to be great stock.

5

all earnings seem to go towards working cap needs…are they selling too aggressively and channel stuffing…

6

sir,

If possible mention the current mkt price of the stock in the heading itself, which is quite useful for new investrors . Just it is my suggestion

7

The results of Bliss is again good. But still cant understand the debtors part. With a half year turnover of Rs. 131 crs, the debtors as on 30th Sept is Rs. 152 crs. Can someone help? This is the only reason which is keeping me away from the stock.

8

channel stuffing perhaps…as I have suggested earlier…

-P

9

Debtors has increased, Current liabilities have increased by similar amount, debt has slightly reduced, no capital has been raised, Other current assets have gone up, net fixed assets have gone up. Inspite of this, cash and bank balance has significantly increased.

Where is this cash coming from then? Will reallyappreciate if someone can help. It will help us identify some probable window dressing and could be a valuable lesson for all.

10

Bliss has moved from Rs. 20 to Rs. 26 in the last 3 months. Are we missing something? Didn’t enter the stock only for the huge debtors. Also cant make out where the cash is coming from.

11

a) check the working capital growth

b) check sundry debtors growth vis-a-vis sales growth

c) check the sum of cash flow of operations for the past 5 yrs vis-a-vis sum of net profits over the same period.

If I were you, I’d be extremely cautious to invest in this stock. Quite a high chance of blowing up.

12

Didnt check the above details but the huge debtors figure was enough to put me off. Still trying to do some calculations for academic interest.

13

Sandeepji, have you been able to calculate on the lines suggested by Kiranji? If yes, would be happy to know the results and conclusions.

14

Does anyone have looked at the results of this quarter? They seem to maintain margins, some of you would have researched this company, would be happy if you could share. I am invested.

15

Sandeepji,

It is one year since you last posted on this thread.

In the meantime, the company does seem to be going places and undertaking many initiatives that can catapulate the company in a new orbit.

Would be happy to receive your further updates on the company where you do seem to be having correct grip on the business model of the company.

Thanks in Advance.

16

Sandeep, I have been researching this company for a while.

Pros: Margins, markets, products, cash reserves, debt free.

Cons: Managementdoesn’trespond, if you research a further bit, though their profits have increased significantly, their Dividend payout has remained same for years…

They were considering setting up a manufacturing unit Middle East, no news.

What information do you have? would be happy to learn.

17

Dear Maheshji,

It is not correct to say that in spite of higher profits, dividend has remained same.

In fact, dividend has been going up every year since last 4 years.

Their September numbers show that the company has entered a new orbit with their latest African acquisition at a cost of 78 crores.

With Regards,

18

Snehal, my apologies....I could have done this number crunching before my earlier post..

Year 2012 2011 2010 2009 2008

Profit (crores)		 52.83 40.63 41.72 37.45 33.7

Dividend (including tax, in crores)		 8.3 3.6 6.03 1.8 0.75

Dividend payout ratio		 15.7 8.9 14.5 4.8 2.2

Looks very impressive increase in dividend year on year in last few years, I have taken numbers from annual reports of last few years.

Would appreciate if you could share details ofacquisition you mentioned.

19

Very nice call, Sandeep. Had a quick look at the nos and their website and it looks interesting.

20

Ayush, good to know that you had a look at Bliss Pharma, what did you like about the company? financials? or their products?