Poly Medicure - at an inflection point!

Stock Opportunities Not-so-Hidden Gems
121

Jatin,

I was planning to put in some projections that would have cleared the picture.

Meanwhile just look at Q1 results. Now that forex issues are out of the way and there is increasing scale there

Is no reason for this performance not to repeat. Try and work out what PAT levels can be delivered for FY14. All data for same has been provided in Q&A!

122

Thanks for the QA update Donald.

For better clarity of my thoughts…I have a quick question.

“All leading OEMs are looking at manufacturing out of India. There are huge distribution networks that are looking at outsourcing manufacturing from India.”

What is the specific reason behind that. Why aren’t OEMs looking for outsourcing from other countries like china (is it the labor cost advantage that they mentioned ?? I am assuming these OEMs will already be outsourcing from somewhere…aren’t they happy…why.??)

OEM contacts will happen, but I feel, it is still some time for that to happen.

Any specifics about the product basket. Is the current product basket good enough…Or they are planning to add to it…??

123
Poly medicure 2007 2008 2009 2010 2011 2012 2013 2014E Base Case 2014E Best Case
Growth 4.10% 27.18% 21.01% 24.75% 23.13% 21% 20.00% 25.00%
Total Sales 84.86 88.34 112.35 135.96 169.61 208.84 252.24 302.69 315.30
EBITDA 17.09 12.36 28.23 33.98 39.19 45.77 51.52 78.70 81.98
EBITDA Margins 20.14% 13.99% 25.13% 24.99% 23.11% 21.92% 20.43% 26.00% 26.00%
Depreciation 3.92 5.56 6.46 7.07 8.59 9.96 11.82 15.00 15.00
Depreciation/Sales 4.62% 6.29% 5.75% 5.20% 5.06% 4.77% 4.69% 4.96% 4.96%
EBIT 13.17 6.80 21.77 26.91 30.60 35.81 39.70 63.70 66.98
Interest 2.76 4.34 5.46 4.78 5.42 6.93 5.90 7.00 7.00
Interest/Sales 3.25% 4.91% 4.86% 3.52% 3.20% 3.32% 2.34% 2.31% 2.22%
PBT 10.41 2.46 16.31 22.13 25.18 28.88 33.80 56.70 59.98
Taxes 2.19 0.41 0.94 1.97 2.26 9.62 9.77 18.71 19.79
Tax rate 21.04% 16.67% 5.76% 8.90% 8.98% 33.31% 28.91% 33.00% 33.00%
Reprted PAT 8.27 7.92 5.93 16.43 21.69 19.26 24.03 37.99 40.18
Net margins 9.75% 8.97% 5.28% 12.08% 12.79% 9.22% 9.53% 12.55% 12.75%
# of Shares 0.55063 0.55063 0.55063 0.55063 1.10125 1.10125 1.10125 2.2025 2.2025
EPS 15.02 14.38 10.77 29.84 19.70 17.49 21.82 17.25 18.25
Adjusted EPS 3.75 3.60 2.69 7.46 9.85 8.74 10.91 17.25 18.25
EPS growth -4.23% -25.13% 177.07% 32.01% -11.20% 24.76% 58.09% 67.23%
P/E 11.09 14.03 13.26
P/Sales 1.06 1.76 1.69
P/Book 2.36 2.07 1.83
124

So there goes, My projections show on a conservative basis Poly Medicure is set to do Rs 17 to Rs 18 in EPS in FY14 and is being valued at between 13x -14x which is historically cheap for the company - and in the light of its superior business quality.

However, the whole thing is based as anyone can see - on current margins being sustained. Our discussions with Management/analysis indicate strongly that these are sustainable!

Ayush/Hitesh

Do you think EPS of 17-18 is easily doable for the year? Shouldn’t it be able to do slightly more?

1 Like
125

Atul,

Good questions. I guess we skipped asking the questions you raise - they are pertinent.

My educated guess

1). OEM deals are mostly for the developed markets like US. “Safety” devices are a MUST there. Poly Medicure is one of the few companies in the world after B Braun to have its own safety device mechanism.

This is the main reason for OEM interest - Else commodity devices like syringes, etc can be made anywhere at much lower costs!

2). OEM deals will happen - soon enough :slight_smile:

3). They actually have a wide enough product basket (in medical disposable devices) - please take the trouble of reading up from their website/ARs

126

I get news from company sources - some ValuePickrs visited the AGM - as some while talking to MD mentioned ValuePickr:)

Kindly share snippets of the AGM. I heard that the Chairman shared some unambiguous targets??

127

Hi Donald,

How they will be able to improve EBITDA margins to 26% this year from 20-22% last 2x years?

Thanks

Poly medicure 2007 2008 2009 2010 2011 2012 2013 2014E Base Case 2014E Best Case
Growth 4.10% 27.18% 21.01% 24.75% 23.13% 21% 20.00% 25.00%
Total Sales 84.86 88.34 112.35 135.96 169.61 208.84 252.24 302.69 315.30

EBITDA 17.09 12.36 28.23 33.98 39.19 45.77 51.52 78.70 81.98
EBITDA Margins 20.14% 13.99% 25.13% 24.99% 23.11% 21.92% 20.43% 26.00% 26.00%










128

Hi Prashant,

Check 1QFY14 Results. We believe these are repeatable.

Issues like fores derivative losses that dragged down before are no longer present, and increasing scale will be key, for above.

You can wait for Q2 Results and check to see if indeed they can repeat approx 10K PAT/Qr.

129

Donald,

I feel that for part time investors like me who have lack of time, reading stock story, management Q&As and the posts is a great source of information about the company in short time. I did the same thing with PI. Read the stock story, Management Q&A and the posts and then went through the ARs and some stock reports and have developed conviction now. Will now read Poly Medicure’s ARs. I sometimes feel that the kind of wealth of knowledge we have created at Valuepickr is tremendous.

1 Like
130

Paaji your projections are on spot… Even Hitesh paaji had mentioned 18-20 eps as reasonable… They can do 19 i guess…

We must hope market to assign high PE… If we are sure of that, we can work on fresh capital allocation based on the relative attractiveness with other valuepickr stocks

Will markets assign high PE

Regards

mallikarjun

131

Went through Stock story & the three interviews. Looks like a good business with nice opportunity size.

Though, projections given by mgt looks a bit optimistic like in the 1st interview, mgt says 30% CAGR was a given for next 2 yrs… while actual turned out to be 22% CAGR.

I largely agree with Donald’s 2014 numbers. 1Q is the worst quarter for sales. 70 crs in 1Q will give 300crs for the year assuming past trends.

OPM has been 25% in last 3 quarters… So, that should stay… So PBDIT of 75 crs.

Then D=16, I=8 & Tax rate 30%, gives PAT of 35.5 crs OR about 9 crs/ quarter.

Last 3 quarters have been at that level. In all probability, we should have 9 crs PAT in 2Q14 also.

That’s a huge jump from 3.5crs in 2Q13.

So, Poly looks a good solid one quarter bet…

Though stock price may or may not rise with rise in Profits in the short run (as we saw with kaveri), but at 15 forward PE & growth of 20%, Poly can be kept for 2-3 years.

132

Thanks Donald.

I

1).

2).

:))3).

133

Hi All,

What about the host of litigations against Poly ? Will it come out unscathed in all of them?

BR,

Shankar.

134

Hi Shankar

They have won in some markets lost in some… The patent granted for B Braun is valid till 2018 ( From latest management Q&A )…

Regards

mallikarjun

135

Hi Donald,

While your interaction with company, did you enquire the management for not conducting con calls? or for providing more corporate access? is the company planning for something like this in future?

do let us know if you have any idea or if anything like this came up during discussions.

thanks

136

Hi Ankit,

We are glad to note that you find our efforts on structured products like Stock Story, Management Q&A worthwhile. These things have evolved over time - and are indeed exemplary tools for coming upto-speed fast on any business/industry. Whenever we need to go back to a business, we have found these the shortest/fastest means to get back on track.

Tomorrow we want to make the Field Reports as another structured product. As usual our ambitions are always greater than our resources :-).Thank you for the encouragement. and keep contributing as you have been doing. There is no better way to keep learning other than openly sharing - everyday.

2 Likes
137

@ Shankarnaryan - that’s a valid concern. However Poly Medicure takes up the legal challenge only in important markets, where they feel it is worth the while. For example in Germany they successfully challenged and reversed the earlier injunction, but for Malaysia they let it be, while for Spain marketthey will probably fight. In markets where they have challenged and won, usually they have got back with the legal costs.

Ayush - you may like to add? Why is this NOT a significant risk. We sort of took it as a given (probably because of our familiarity, multiple interactions, and I for didn’t know that they had suffered reverses on more than one occasion.

138

@Anil - Ayush champions this section from ValuePickr side - about becoming more accessible to shareholders. Creating an investor presentation, providing short updates with the results, creating and maintaining a consistent dividend policy, graduating to holding Concalls, etc.

I (used to) stay shy of advising Management what to do - but people like Ayush (and Gaurav Sud) believe passionately in this, and always take this up with Management. And I concur with them now.

Ayush - can you advise on the feedback from Poly Medicure on this aspect - from your multiple interactions?

139

@Donald - Agree with your projections. As of now, I think we shouldn’t expect nos more than the projections above as for a higher growth they need a break-through into new products/markets which may take sometime. And we should better be conservative.

@Shankarnaryan - If you look at their annual report, there are hardly any material litigations/contingent liabilities (except the usual import/export and capital contract obligations). Polymed has been able to win the case in two major Countries - India & Germany :

http://healthcare.financialexpress.com/201002/market26.shtml

http://www.financialexpress.com/news/Poly-Medicure-gets-Germany-nod-for-safety-IV-Cannula/582551

And if one has won the case against a major MNC like B Braun in their home country then odds should be in favour of Poly Med.

Given the financial muscle these MNCs have, Polymed surely hasn’t had it easy…they keep troubling them in different Countries etc and this is the reason Polymed has been going safely and not getting aggressive. They seem to be well aware of the risks and their small size when compared to B Braun, as of now.

@Anil - many of these small cos are just a decade old and are very cautious, low profile and want to remain under the radar. They usually feel that they are too small for presentations, concalls etc. They believe performance speaks for itself and as they are doing things honestly and don’t need funds from market, they don’t need to market themselves. They usually also fear increased competition or loosening of trade secrets etc.

Ayush

2 Likes
140

Ayush,

Thanks a lot for your response. The points which you mentioned does make sense from company point of view. And Yes - performance speaks for itself.

Donald,

Thanks to you as well.