Shilpa Medicare -Racing away on the Oncology API highway!


(Vilin) #410

In my view this move by Shilpa management is a smart move and time to perfection since it is trading at high valuation (for the obvious reasons high growth, earnings visibility etc) and share price has run up post Q2’FY17 results. Also issue of shares at high valuation means less dilution of equity and less dilution of earnings.

As guided by management they will need ~450 crores in next two years for capex which will be funded through mix of debt/equity/internal accruals. In the past also, they have raised funds (in 2014 and earlier) via equity to fund future capex.

They may raise anywhere between Rs 75-150 crores via equity @ 675-700 which means dilution to the tune of 1.5% to 3% which means promoter continue to hold close to 53% to 54% of the company.


(Ravi S) #411

Isnt share price will drop due to increase in equity capital (which will lead to drop in eps)? What could be better strategy, sell now n buy later?


(Srinivasan Sundaram) #412

Outcome of board meeting held on 1st Dec 2016

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/81F54FD3_4BA4_4753_BA4D_CB8DD8A91D93_154721.pdf


(Vishal Bharti) #413

Not sure what’s the “hurry” in selling shares at Rs 570/- when market rate is Rs 670/-? Views invited.


#414

yes, and I noticed that FIIs especially Mauritius based hold significant % while hardly any holding by Indian MFs.


(Donald Francis) #415

Should have updated this along with Ankit’s AGM Note. Sorry for my pre-occupation/tardiness - couldn’t prioritise before. Think its relevant for everyone interested/tracking/invested in Shilpa to be aware/thinking about these issues, too.

Equity Dilution/Reverse Merger Issues raised during AGM 2016

1.Shilpa Medicare has executed brilliantly over last 2 decades. Much of that Credit goes to your brilliant leadership and Team Shilpa. However this journey has often been funded by frequent Equity dilutions (almost 100% between 2005 to 2015; Adj shares 2005: 2,656,100, 2015: 5,140,127) unlike say a Divi’s Laboratories which has managed exemplary growth with zero dilution. Your thoughts?

Unfair to compare Divi’s Laboratories with us. They are huge in Contract Manufacturing. The business is in a different league - hugely profitable - that funds itself. We have to invest much more in R&D and long-gestation projects, before we can start seeing returns. Our model is different.

2. At the same time, as an Entrepreneur who is largely responsible for bringing Shilpa to where it is today, you must have some floor on dilution? Whereas all vision and execution is by the Entrepreneur, one view says with frequent dilutions, it’s the financiers who walk away with all the spoils. You might not want your stake to go below a certain threshold like 40-50%?

Well its not just me. Its Team Shilpa that has brought us where we are today. I don’t think about Equity that way. I am not even aware of what exactly our stakes are. Promoter family category together has some 50 -60% stake. No, I do not see any floor like that as long as we continue to take the business to higher levels.

3.Yet, there are other - one would say - less costlier ways of funding growth. A better mix of debt-funding was always possible? Could your explain Shilpa’s thought process on the optimum mix of debt and equity funding?

Yes, agreed debt funding is also one of the modes that we would be increasingly looking to utilise. Our thinking is as follows:

a) Long gestation projects - like say the Bio-Similar project - we have to keep investing for about 5 years, before we can see results. For such projects, when we know returns are going to come only after 5 years and subject to some risk, we prefer Equity Funding as a less costlier route. Why take on huge debt, and add the burden of debt-repayments while returns are still far away.

When we plan for a long gestation project - typical funding plans are 1/3rd equity dilution, 1/3rd debt, and balance from internal accruals. We like to ensure required money is at hand right at the start, rather than go the bank in the middle of the long gestation project (and face any restrictions).

b) Smaller gestation projects - obviously we prefer to use Internal accruals first, with a judicious mix of debt. No equity dilution.

4.Some Analysts point to an amalgamation carried out in 2009 with a small entity Shilpa Organics Pvt. Ltd. - financials unknown - swap ratios couldn’t be transparently established. 2006 AR showed this an Associate company with high related party transactions?

Promoters acquired a sick unit in late eighties ('87 or '89) and turned it around subsequently - Shilpa Organics. PE Investors on board had prodded us on the amalgamation to upheld Corporate Governance standards - to ensure no conflict of interest with any other promoter-held entity engaged in same line of business.

5.The same analysts point to an almost 16% shareholding increase, following the Amalgamation, by Promoters in a cashless manner?

Well, as mentioned that was sometime back. Can’t recall the exact financials. What I can assure you though - we had followed proper procedure as laid down by stock exchanges, SEBI guidelines and court orders. As of this moment - there is not a single paisa of promoter family invested in any other pharma business. Focusing on Shilpa Medicare and continuing to grow the business is what we will invest in.


(Donald Francis) #416

According to me, a few things to notice:
a) It was important to question Mgmt to Understand how/why they dilute so frequently (vis-a-vis say other businesses that manage to grow equally well

b) Mgmt had sort of indicated that they would not be diluting any fresh equity for the 450 Cr planned investment in next 2-3 years. 150 Cr for dry-power injectible line (short gestation), 150 Cr for Navya (long gestation), 50 Cr for API plant(short gestation), and another 50-100 Cr for R&D at Bangalore or Jadcherla (long gestation?).

This is what Ankit had captured in teh AGM Note
"The funding of the same will be through debt of Rs.150 – 200 crore, cash of Rs.70 crore and remaining through internal accruals. The company was earlier planning to raise equity for the same, however, on account of steep valuations, it was unable to get funding. However, now it can raise some debt and through its own internal accruals go ahead with its plans.

So that might be the clue for fresh dilution proposal: They were subsequently able to raise funds with new developments justifying valuations. It’s a possibility (unlikely though given long-term planning process of Shilpa) that some new developments require bigger investments?

c) Re: Amalgamation
If the financials of Shilpa Organics pre-amalgamation were made available in 2009 in a transparent manner, it would have been above reproach. Since they weren’t, one can attribute a “questionable” practice undertaken by Shilpa Management then - especially as the stake was shored up by as much as 16% - which isn’t a small amount!!

Given the response of Mgmt on this amalgamation issue, it may perhaps be relegated to “ignorable” basket especially given that multiple PE investors are now on board - and something similar is very unlikely to get repeated.

But such issues need to be watched/monitored!
Also a clue to us to differentiate one-time(?) questionable acts form perpetual. Remember Mayur had one too


(Praveen A) #417

Similar questions regarding the acquisition of Navya Biologics. At the AGM it has been justified on basis of being a good strategic fit enabling Shilpa to enter biosimilars, which may very well be the case. However in the valuation document attached earlier in the thread, they have valued a company with equity of just 1.76 cr as of 2016 at 70 cr , a P/B of almost 40 which they say they arrived at using DCF based on projected financials till 2025


(P Sharma) #418

Donald this can directly be attributed to incentives. When the company was small and hence their stake smaller, the behaviour is very different. Now that the stake has become much larger, the propriety of the conduct of most rational people would be different. Though this is very remotely connected, it is not very dissimilar to the politician saying things on the campaign trail as opposed to actually acting on the same when in office.

As investors we should always question the motive behind such early stage behaviours of promoters but also be very cognizant that though these facts are important, they don’t define the company and the promoters over a long period of time. However, repeated instances should be looked at with a lot of scepticism.


(Sandeep Patel) #419

Shilpa has received an approval from the USFDA for Capecitabine Tablets USP, 150mg and 500mg.

Source: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/E297A419_D96E_4B87_A9B0_6CF948323965_124625.pdf


(Hitesh Patel) #420

With the slew of approvals Shilpa is now beginning to look like a small fish which has found a big pond. How big the fish grows would determine the shareholder returns.

But with the approvals of USFDA some time back , a lot of things seem to be falling in place for Shilpa in around the same timeframe. (This usually applies the other way too, when things go wrong usually not only one but a lot of things go wrong before light appears at the end of the tunnel.e.g Ipca, Sun, Wockhardt etc)


(Krishna Rai) #421

Hello Sandeepji, Hiteshji and other boarders,

I have few questions on this news and I am hoping that you would be able to help me with your deeper insights
1- Is it fair to assume that Shilpa would be able to sell Capecitabine in 150 and 500 mg dosages with immediate effect in US.
2- The market size in US is called out to be 754 million USD. Is it correct to assume that market for generics would be about 30% of that which comes out about 235 million USD.
3- Assuming “2” is almost correct and given that four more players are already there, is it ok to assume that after sometime Shilpa would be able to get about 20% of the generics market, that is about 47 million USD. Assuming that Shilpa would not be able to get market share immediately, I am assuming that at least half of this would be possible over the next one year which is about 23.5 millions USD or 157 crores of topline.
4- My understanding is that this drug is high margin and NPM would be about 50%. This is a big assumption and I do not have data to support this but if that is true then this drug alone would result in 78.5 crores of profit for Shilpa in next one year. Please educate.

I am confident that answers to some of my questions if not all are available on this thread, in ARs or somewhere on the web. I tried to get this out but could not find and so posting here. Thank you so much for educating me.

Regards,
Krishna


(Shivashankar) #422

Hi Krishna,

With my limited knowledge on this subject…my answer would be like below,

  1. After approval companies usually require abt 6 months to start marketing.
  2. Also, unlike India, in US the pharma companies need help of Pharma business managers …means insurance guys to list this product…so the company has to bargain for the price with them.
  3. So market share depends on the price they manage to agree…

correct me if i am wrong


(Ankit Gupta) #423

Hi Krishna,

I will try to answer your queries here.

  1. Yes. Shilpa would be able to sell Capecitabine (gXeloda) in 150 and 500 mg dosages immediately. In fact, these are only two dosage forms approved for the product (http://www.accessdata.fda.gov/scripts/cder/daf/index.cfm?event=overview.process&ApplNo=020896). Whether Shilpa is able to immediately launch it or not, we really dont know. It all depends on various factors including supply chain, marketing partner and its tie up with distributors.
  2. The patent for Capecitabine expired in 2013. The market size for the product as per Hikma’s (after it acquired Roxane) press release in USD 493 million for the past 12 months ended May, 2016 (http://www.hikma.com/en/media/news-and-press-releases/product-news/2016/hikma-announces-launch-of-generic-xeloda--tablets-150-mg-and-500.html). This market size is after generic entry and with a new player’s (Shilpa through its marketing partner) entry it might fall by 10 - 20% or more. It still is an attractive product given limited competition.Furthermore, if the volume for the product are increasing, despite pricing pressure, the market size for the product doesn’t shrink much (search for Xeloda in Roche’s FY13 AR - http://www.roche.com/dam/jcr:17d47300-2921-45bd-bf9c-89a94b3562b6/en/fb13e.pdf. It had sales of CHF 616 million in USA befor expiry)
  3. First of all how much market share Shilpa’s marketing partner is able to garner is something we really dont know. The drug has already been launched by the generic heavy weights, Teva and Mylan, as well as Intas (through Accord).
  4. First of all Shilpa doesn’t have its own front end in US and will be launching it through its marketing partner. Usually, the profit share with marketing partner can be as high as 50% of the total profits.
    I really dont know how much money will Shilpa be making from this drug but it can be a pretty decent product given limited competition (DRL has been trying to get approval for the product since long),

(Kranthi Kumar) #424

Disclosure: 3% of my portfolio


(Marathondreams) #425

Good interview of Mr. Vishnukant Butada on CNBC TV18’s “Making it Big” show

http://www.moneycontrol.com/news/features/how-shilpa-medicare-was-built-vision--strategy_8134721.html"?port_flg=yes&utm_source=MC_INMAIL_NEWS"


(Ayush Mittal) #426

The cost of cancer drugs over time is staggering
Just like HD TVs but the opposite direction

http://faculty.washington.edu/cb11/


(Shivashankar) #427

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=692b2761-c7ee-4a94-afda-e50044c7939c

Shilpa Medicare Ltd has informed BSE that the Board of Directors, at their meeting held on December 26, 2016, allotted 30,25,000, (Thirty Lakh Twenty Five Thousand) equity share of Re. 1/- each at a premium of Rs.569/- per share in the name of TA FII Investors Limited, IFS Court, Bank Street, Twenty Eight, Cybercity Ebene 72201, Mauritius pursuant to the resolution passed by the shareholders at their Extra-Ordinary General Meeting held on 26th December, 2016 and in-principal approvals received from BSE Limited (Dt:8th December, 2016) National Stock Exchange of India Limited (Dt.23rd December, 2016).

The Company has further intimate that Mr.Naresh Patwari has been co-opted as an Additional (non-executive and non-independent) Director of the Company, being the nominee of TA FII Investors Limited with effect from this date, subject to regularization by shareholders at the ensuing annual general meeting of the Company in accordance with the requirements of the Companies Act, 2013.


(Vivek Gautam) #428

WOW.What a lovely write up. To be chewed upon.Read & reread.Thanks Ankit


(krkarthikeyan) #429

is Shilpa medicare not over priced ? or atleast fairly priced ? how do you think one can expect a CAGR return of over 25% in the next 5 years ?