Hester Biosciences - Growing Steadily

(Ayush Mittal) #62

Fantastic post and summary, @pikrohit! Having been following and invested in this company for sometime now, I have been impressed by the long term journey of the company - they started as traders for big MNCs in mid 90s and are today one of the largest producers of vaccines in India. Going forward if one looks at their plans etc, they are making efforts to expand the product range, enter animal health area (which is the bigger segment for all the MNCs) and get more revenues from exports. So the steps are logical and if executed well, they can do pretty well. However, the management has promised a lot in past but delivered lesser or later.


(Rohit Ojha) #63

Here is a text from 2007 AR

The poultry industry has now stabilised, which was earlier under stress due to the Bird Flu outbreak in February 2006. The industry growth rate is back in double digits, this time with a higher focus on hygiene and disease preventive measures. The use of poultry vaccines has gained lot of importance as a tool to prevent diseases.

Even if you look at results in 2007, the revenues were flattish. Eventually these things are a temporary blip and the industry would rebound very fast after the disease is controlled. In fact, Poultries had a tough time in 2016 also. If you read AR and concall transcripts, management said that the year was the toughest in last 10-15 years and costs of operation for poultries were 20% below selling price. But the industry has recovered now.

Nepal was selected because of Nigerian strain cant be manufactured in India. Geographical proximity to India and 10 year tax break may have played a role. Africa could have been an option but it may not be easy to go to a country that you are not so familiar with. That said, Hester is planning a green field plant in Africa, but it will come only they have clear visibility of utilization at Nepal.

Nepal doesnt have a large cattle population. So PPR spreading would not be a big risk. If it spreads, Hester opportunity size will only increase.

PPR vaccines are also needed in countries other than Africa. South east asia, middle east etc. The opportunity of PPR is enormous and Hester with approvals in place shouldnt have problems getting the tenders. They probably have one of the lowest cost structures, and also good distribution network. So I dont see any reasons why they wouldnt grab some portion of the pie.

They are also working with non tender business, although volumes will be small. This has been mentioned in concalls.

@ayushmit absolutely…the company is making the right moves. This is a case where we shouldnt rush as there could be disappointments (compared to commentary) on the way, providing better opportunities to buy.

(Rohit Ojha) #64


I was expecting better numbers from Hester. The tax outgo is lower and hence PAT and EPS look high.

Large animal business showing a small operating profit. Nepal hasnt commenced operations yet. Export numbers were a disappointment.

(Abhishek Basumallick) #65

Summary of my notes from the Annual Report - 2016

• Cumulative production capacity of 6 bn doses once the Nepal capacity goes online
• 2015-16 performance was achieved despite a 6-month trough in India’s poultry sector that affected the sector for 3 quarters. The trough was the result of high feed cost and low realization of poultry output of meat and eggs. This resulted in a lower replacement of chicks.
• Started trial production of two batches in its Nepal plant and submitted these to regulatory authorities in 2 African countries
• HBS has decided to make a strategic shift to health products over dependence on poultry products
• Focus on exports to de-risk company from exclusively depending on domestic market
• Poultry Vaccines Segment: Introduced two Poultry Vaccines namely the Salmonella Live Vaccine and the Inclusion Body Hepatitis Vaccine
• Large Animal Vaccines: started manufacturing and marketing of large animal vaccines. Currently, manufactures PPR and goat pox vaccine. The Indian plant at Mehsana produces the PPR Live vaccine strain meant for India (sungri strain); the Nigerian strain will be made in the Nepal plant for export markets
• Brucella abortus S19 vaccine will be commercialized this year
• Large Animal health Products Segment: Comprises of medicinal products, feed additives & disinfectants. HBS does not manufacture products themselves. The outlook for growth is robust and can outperform the other divisions in the near future.

(chintri) #66

@basumallick What’s your view on valuation at current market price? As I had bought it at 389 and then sold it @586 since then very much skeptical about valuation.

(Abhishek Basumallick) #67

The Nepal plant will be operational from Nov 15, 2016. The volumes may pick up from Q4. Valuations are on the higher side (as of now & in my opinion). It can remain at these valuation levels if the earnings come through.

Disclosure: I am invested and not selling at this price.

(Abhishek Basumallick) #68

Oct 20, 2016: Q2/H1 FY17 Conf Call Highlights

• The exports have been a bit slow in the first half, but we have reasons to believe that we should pick up in these exports in the third and the fourth quarter.
• The Nepal plant which is now slated for firm final commercial production on 15th November 2016.
• Already got an order through FAO for supplies in Africa which would commence the sales for the Nepal plant
• Launch the Brucella vaccine in the next 45 days
• Already got batches tested at the Central Testing Laboratory in Africa which is a common testing laboratory for the whole of African continent for PPR vaccine
• Started our own diagnostics division wherein we will manufacture diagnostic kits at our plant in Ahmedabad and we will do our own marketing and distribution in India besides looking at toll manufacturing opportunities with international companies
• Orders of 3.5cr in hand for Nepal plant. Margin profile to remain similar to get slightly better for international orders.
• Working capital days has drastically reduced to 64 days
• Tax rate to be at similar levels as the co falls under MAT and is getting incentives for R&D capex
• R&D spend till now of 4 cr. Part of this is capitalized and does not go through P&L.
• Total consolidated debt is 56 cr

(LG-D) #70

Hester Bioscience’s long/ short term credit ratings by CARE were upgraded from “BBB+” to “A-:Stable”


(Golden Star) #71

Management Discussion & Analysis (MDA) Snippets - Hester Biosciences Limited

About Hester Bio
Hester Biosciences Limited is an India-based company engaged in manufacturing of poultry vaccines and large animal vaccines, and trading of poultry health products and large animal health products. Its segments include Poultry Division and Large Animal Division. It provides over 40 products across poultry vaccines (live and inactivated), large animal vaccines (live and inactivated), health products and diagnostics. Its product range includes vaccines, drugs, feed supplements and disinfectants.

Key Products and Segments
-Poultry Vaccines (87%)
-Large Animal Health Products (7.40%)
-Poultry Animal Health Products (3.43%)
-Large Animal Vaccines ( 2.17%)

MDA Main Triggers
Industry Overview - Global Veterinary Market

  • The Global Animal Healthcare market is expected to rise to USD 43,032.01 by 2020 (CAGR 5.1%)
  • Increasing adoption of pets in emergings economies like India and China driving pet vaccinations along with demand for Meet, Milk & Eggs.
  • Demand expected to come from India, Indonesia, Thailand, Vietnam, Brasil, Argentina, Chile, Israel, South Africa, China

Industry Overview - Indian Veterinary Market

  • Expected to reach USD 2440 Mn by 2020 (CAGR 15.2%)
  • Increasing demand for meat and diary products due to western influence.

Sectoral Optimism

  • India accounts for 31.5% of world cattle popoulation
  • Massive opperunity for Animal Healthcare market
  • India 2nd Largest egg producer in the world after China
  • Annual per capita consumption of poultry at 3.1 kg in India vs 17 kg in developed countires
  • India Chicken consumption growing at 12%, driven by Burgers, Chicken Wings, Nuggets, etc

Corporate Optimism

  • Hester is the second largest producer of poultry vaccines in India with market share of 28-30%
  • 87% of company’s revenue dervied from poultry vaccines growing at 20% CAGR till FY 2015.
  • Growth from FY15 - 18 is expected to be at 16% CAGR
  • The company expects Goat POX and PPR as key revenue growth drivers going forward due to goverment embarked disease eradication programme for PPR.
  • The company anticipates growth in large animal vaccines segment in India, Africa and South East Asia.
  • The Company established a manufacturing plant in Nepal to cater to this demand and anticipates this segment to Grow by 50% this year.

Current Financials (FY 15 - 16)
Sales stood at 100.8 Crs
EBIDTA stood at 33.07 Crs
PAT stood at 19.23 Crs
EPS at 22.60

Current Financials (H1 FY16-17))
Sales stood at 58.38 Crs
EBIDTA stood at 20.36 Crs
PAT stood at 11.97 Crs
EPS at 14.07

At cmp 730, the stock trades at 24x expected FY17e EPS of 29.64. We suggest that buy around 650 with the PE around 22x Fy17e.

Management Guidance

  • Large Animal Health Care Division to grow by 50%
  • Poultry Business at 15%
  • Exports around 100%
  • 25 Cr to be invested in Capex

What to Watch out for in Earnings

  • Development of PPR Vaccine
  • Nepal Plant Output
  • Development on Brucella Vaccine
  • Update on Animal Diagnostic Business
  • Sales expected in range 28-30 Crs
  • PAT expect in the range of 5-6 Crs
  • EPS expected in range of 7 - 8 Rs. per share.
  • EBIDTA Margins at 35 % and PAT at 20%

(Abhishek Basumallick) #72

Q3 2017 Results:

Business Overview

  1. Growth in sales and profitability is as per budget. Margins have improved due to continuous focus on credit control, inventory management and better product mix.
  2. Export sales have been slower than anticipated, would remain to be slow in this financial year. The distribution infrastructure creation mainly in Africa is as per schedule but product registrations in various countries is going on slower than anticipated, a situation beyond our internal control. This slower growth in exports would be compensated by higher domestic sales, thereby hoping to achieve the FY17 targeted sales.
  3. The company has launched its Brucella vaccine for cattle. The vaccine has a good market in India as well as internationaly, in our target markets.
  4. Nepal plant has commenced commercial production on 15 November 2016.

(Saket) #73

Short Summary of Q3 conference call:

we have also prepared few other summaries. Sharing here: https://goo.gl/5RTk0o

(Nelson) #74

Great job Saket. We need such novel initiatives particularly for small and mid cap which are not as frequently or widely covered.

(HG) #75

@Saket_lohia Very useful. Thanks for sharing!

(Hersh Kapadia) #76


It really is commendable in preparing summaries of conference calls. It gives information to all investors that missed such management interactions. But just wanted to share with you Hester uploads its transcripts of calls on their website. I have copied the link to their website. Hope this is helpful.


(sagararya) #77

This is absolutely brilliant! really appreciate your hard work. Thanks a lot for this.

(CommonStocks) #78

Hester Biosciences to invest in Texas Laboratories, Gujarat. Details here.

(Hersh Kapadia) #79

There is a recent interview of the promoter where he mentions the company does not have plans to raise capital in near term. He will be financing his expansion through debt.


(Abhishek Basumallick) #80

Q4 FY17 Results

Dividend of Rs 2.30 / share declared.

Business Overview

  • The sales in the poultry divisions grew at 19.22%.
  • The Large Animal divisions have shown a growth in sales of 61.84%.
  • Domestic sales grew by 20.95% while exports grew by 44.01%.
  • The diagnostics division, which was supposed to be launched in Q4FY17, would now be launched in Q1FY18.

Nepal plant

  • Hester executed the first export order for PPR vaccine from Nepal in February 2017, valuing INR 1.31 Cr.
  • Export orders are expected to flow in from Q2FY18.
  • Vaccine manufacturing for domestic sales has commenced, the sales of which shall commence in this Quarter.

(Hersh Kapadia) #81

Transcript of conference call is out

(Ayush Mittal) #82

Q4FY17 concall summary:

Poultry vaccines which grew at 19%, the large animal division grew at 61% against our earlier forecasted of 50%. On the export side, we grew at 44% though we had estimated a growth of 100% and on the domestic sales side, we grew around 21% better than our planned or budgeted growth.
Exports were lower than expectations as registrations are not in our hands and took longer than expected. We hope to grow at 100% next year. Second issue on export is our PPR business - which has been slow to pick up. Somewhere middle of this year it may pick up.
We expect large animal business to grow 50% next year.
We had committed and planned to launch the diagnostics division in the fourth quarter of the last financial year. There has been a little delay in that and the diagnostics division would be launched within a month’s time that is in Q1 of this financial year. We hope that this division settles by Q2-Q3 from where we would start generating sales. profitability in this division should be reasonably better than the average profitability of the other divisions. By Q3 we should have a trend ready based on which forecasting can be done.
We have been more focused on profitability and keep strict check on working capital and better production planning.
On the Nepal front as you are aware, end of last calendar year we started our commercial production, we had by that time also won a tender which order also we have executed. We are now focusing on additional tender business as well as the domestic sales from the produced at the Nepal plant. This also would stabilize shortly in this first or the second quarter and we should comfortably be able to take the sales and distribution activities further.
On international front, our focus remains to be in for Africa in this financial year and in this year we should have developed a strong distribution network mainly in Eastern Africa and then going further to Southern part of Africa and then to Western Africa. The whole distribution network, etc. would be in place in the next 3 to 4 months which is actually it is already functioning but when I say in place, I mean additional resources to be pooled in towards making it more robust than what it is, not that it is less, anything of it less at this point of time, it is just that we want to make deeper penetrations into the African market because the registrations which we are getting are coming on quite reasonably fast at this point of time. We have also got our other vaccines tested in the African Union Laboratory for supplying in the African continent. So these activities are well in place.
R&D spend is about 6% of turnover. We would continue spending 6-8%. We aim to roll out thermostable PPR Vaccine this year. In Africa there is good opportunity for this.
Internal target is for 30% growth for FY18.
Asset turn improved to 1.5 times vs 1.4. Inventory days down to 97 vs 120. Receivable days down to 78 vs 94. Overall working capital days down to 66 from 107.
Dividend of 5.3 resulting in payout of 18.15% as per policy.
We have invested about 15 Cr towards creating an additional capacity for inactivated vaccines, which should go on stream in September or October in this year in 2017.
We have registrations for most of the countries in Africa however we need more product registrations to push sales.
We are looking to churn more out of the capacities already created before doing next major capex.
The big ticket items PPR, Brucella which are now very strong for us. They definitely would be the growth drivers as far as the large animal division is concerned and besides that on the large animal health products side, we have planned to launch around 30 products in this financial year. These products could include it could be medicines, it could be feed supplements, it could be disinfectants. So, this is the range that we are really trying to launch within this financial year.
We may do 10 Cr from Nepal.
PPR tender size are from as low as 20 lac to as high as 7,8,10 or 12 Cr. Depends on Country.
Top Vaccines - In terms of value in poultry, live vaccine Gumboro would be number one. In terms of doses, Newcastle disease would be number one. IB Vaccine would be equal to Gumboro in no of doses but value is less.
Besides tender business, we have made immense big inroads in LA Vaccines throughout the country. For international tendering, we are the only co with Indian and Nigerian strain.
We as a company want to use Africa as the base for our growth. So, we are putting, we are creating our own infrastructure, our own distribution, we would definitely be probably the only company or may be one of the only companies, I would say the only company being a manufacturer having its own distribution network. Other cos have distributor in SA. Now how does this translate into business is something that we have to work ourselves.
Given the opportunity we should at least have, we could very easily have one of the vaccines or between Brucella and PPR we could cross more than 150 crores very easily. These are conservative nos, anyone can read the documents that the opportunity is of $15 Bln for next 15 years. In India Govt has 2 disease eradication programs Brucella & PPR. Put together we could do 100 Cr.
We are not looking to do QIP. May need only if we have some opportunity of very fast growth in business.
2020 Vision - We want to be 8-10 times bigger but it will be bottom line focused.
Vaccine is something it is a preventive medication which has to be given irrespective whether there is an outbreak or not an outbreak.
How do we get the strain - Getting the seed virus is not the issue, the issue is producing the vaccine.