Hi Jatin,
Perhaps a detailed note will help in understanding Shilpa better. To understand this co, try ignoring the last 2-3 years (which has been a period of consolidation) and then see the picture of last 10 years till 2010-11. If the co can repeat something what it has done in past, the current levels are interesting.
Regards,
Ayush
Shilpa has been stuttering on the sales growth front since past 2-3 years where growth has been near stagnant…
In the last few quarters things seem to be improving…It had broken the 90 cr quarterly revenues barrier in March 12 and since then things seem to be going strong with the company growing above 100 crores in recent june qtr.
I would like to keep a close eye on the sales momentum in shilpa first and then look at other factors like profitability… If shilpa can manage to grow sales, other things like margins, forex and other smaller things will take care of themselves.
As ayush mentioned, if the company is on the cusp of another growth phase, cmp seems interesting to look at shilpa.
The story looks great and is very interesting mostly because the two value pickrs I respect, Donald and Ayush, seems to be convinced. I hope we get to do a management meet here and get a sense of the timelines involved.
The biggest issue is sitting around and waiting for growth to come (and some have been doing so for 3+ years); If we lack understanding in the fundamentals, its hard to take a significant position in the company. If we look at 08-09 the profits fell a lot before it grew by 4x; It would be breath-taking to sit through this ride, if one dint get a deep understanding.
@Donald and Ayush - Would really appreciate a detailed write up of this story. When is the USFDA approval expected and what does the timelines look like on the JV? What is the potential to impact on the sales over the current numbers?
I know this stock is about sitting and waiting for positive black swans to occur (with reasonable odds), but it would be good to get a sense of the potential.
Prasanna,
Thanks. Ayush and me have been discussing to spend more time on Shilpa and get more guys involved/energised in understanding/exploring/investingating this very promising story further.
Let me see what we can individually come up with. I plan to see if I can present a more detailed but brief note of the AGM discussions.
By the way, results have started coming/surprising us! So it’s not as if its a very hard wait. But yes, to take significant positions - we first need conviction build-up.
For that to happen, we need to encourage everyone - feed on each other. Each of us can do something? We need to do our bit - including You. Dig for information. Take the new name products Shilpa has shared in its AR 2013 - dig out the potential for these products. How many players worldwide for these?
Ever compared with Natco Pharma? What does it have that Shilpa does not? or vice versa. What are the differences in business models?
There is so much to be done - wake up guys? It’s not just enough to depend on Management Q&As which happen once a year. We get the ability to make Management Q&As happen because of the work done on the company - convinces the Management to give us time - NOT, otherwise:)
hi donald,
do you mind puttinf up this notes from agm when you get a few minutes? the stock seems to be interesting poised technically and i am starting to do some research on this one.
thanks in advance,
hemant
otherwise
Dear Hemant,
Shilpa is indeed poised very well fundamentally too. Q1 results are actually exemplary - anyone who spends some time on that will discover. The consolidation referred to by Ayush is very small. Even now Consolidated Results add 10-12% to standalone results. Standalone results are good to compare. One must notice Margins have shot up dramatically - take out the impact of Forex M2M - then we begin to appreciate just how good this can be.
I wanted to put up some projections for FY14 which shows me that Shilpa is placed anywhere between 11-12x even at CMP after the slight run-up).That is cheap for a company of Shilpa’s pedigree.
AGM Notes - I looked through and found that there is hardly any details/notes - other than what I had already mentioned just after the visit.Will try to put up some projections on Monday, when I find some time. Right now in the midst of hectic Puja/Navratri festivities:)
Wishing everyone Happy Puja/Navratri.
Disc: I have vested interests in the stock. I was a buyer at 150+ levels after the AGM, have added more at 165+ levels, and have again bought lots at 172+levels noticing the attractiveness of valuations, again:)
thanks donald. i have also been accumulating shilpa on declines. stocks seems to have finished its 2 year long correction. look forward to your projections.
Hemant whats your TA for Shilpa Medicare ?
hi vivek ,
if my analysis is correct, shilpa is in the initial stages of a bull run. it rallied from 21 in 2009 to 244 in 2010 - a huge 12 bagger in 2 years. this was primary wave 1. stock corrected in primary wave 2 to 96 in end 2011. sincethen it completed the first 2 intermediate waves of primary 3 and seems to have started intermediate wave 3 now which should take it to new highs and beyond. it needs to cross 220 convincingly first for this to come true. i have accumulated at lower levels and would stay invested.
Here are my conservative projections. In my opinion there are upsides possible - results could be better:)
| Shilpa Medicare | 2010 | 2011 | 2012 | 2013 | 2014E | 2015E |
| Growth | 9.82% | 8.29% | 33% | 22.92% | 25.00% | |
| Total Sales | 234.46 | 257.48 | 278.83 | 371.32 | 456.43 | 570.54 |
| EBITDA | 82.30 | 78.22 | 65.83 | 69.83 | 100.42 | 136.93 |
| EBITDA Margins | 35.10% | 30.38% | 23.61% | 18.81% | 22.00% | 24.00% |
| Depreciation | 9.75 | 10.42 | 11.40 | 12.75 | 20.66 | 22.82 |
| Depreciation/Sales | 4.16% | 4.05% | 4.09% | 3.43% | 4.53% | 4.00% |
| EBIT | 72.54 | 67.80 | 54.43 | 57.07 | 79.76 | 114.11 |
| Interest | 5.02 | 1.85 | 1.44 | 1.36 | 3.75 | 5.71 |
| Interest/Sales | 2.14% | 0.72% | 0.51% | 0.37% | 0.82% | 1.00% |
| PBT | 67.52 | 65.95 | 52.99 | 55.72 | 76.00 | 108.40 |
| Taxes | 20.02 | 15.43 | 10.51 | 9.65 | 16.72 | 23.85 |
| Tax rate | 29.65% | 23.39% | 19.84% | 17.32% | 22.00% | 22.00% |
| PAT | 47.50 | 50.52 | 42.48 | 46.06 | 59.28 | 84.55 |
| Net margins | 20.26% | 19.62% | 15.24% | 12.41% | 12.99% | 14.82% |
| # of Shares | 2.2024 | 2.2024 | 2.4024 | 2.4024 | 3.68 | 3.68 |
| EPS | 21.57 | 22.94 | 17.68 | 19.17 | 16.11 | 22.98 |
| Adj EPS | 12.91 | 13.73 | 11.54 | 12.52 | 16.11 | 22.98 |
| EPS growth | 6.37% | -15.91% | 8.43% | 28.70% | 42.63% | |
| P/E | 15.90 | 12.35 | 8.66 | |||
| P/Sales | 1.97 | 1.60 | 1.28 |
Some Notes on above projections:
1). This is based on standalone results projections. Consolidated basis sales/earnings should be better
2). Tax rates for 2013 ~17%, taken at 22% MAT rates for 2014E
3). Projections are more from a extrapolated view of Q1 earnings - rather than solid insights into the business; needs to be taken with a good pinch of salt!!
Look forward to comments from Hitesh Patel, Ayush Mittal and other Shilpa trackers if assumptions seem reasonable - on growth/margins front and related interest/depreciation cost estimates.
Th ECB that the co took was at Libor+350bps which is higher than the ECB it had taken last time (which was Libor+150bps). Why does it have to pay more interest? Is it specific to the company or that the interest rates have hardened in general?
The ECB has personal guarantees put up by two of its Directors
. Why does a director need to put in a personal guarantee? Doesn’t the company merit loans on it assets?
donald
thanks for the projections… Personally I think they might end up doing eps of around 17-18 for fy 14… based on that stock is available at around 11-12 PE fy 14 expected eps.
I also feel its a good buy on dips.
Hi Hitesh,
Your estimates are based on forecasting 1Q results or some other insights in the business?
Hi Donald,
Isn't the FY13's figure of Rs.371.32 crore the consolidated sales of the company? Coz the standalone sales is Rs.328.19 crore as per the AR. Also, I have gone through the company's FY13 AR and it doesn't give much information about the company (their clients, geographical break up of revenues, revenue potential etc; I feel that after one reads Alembic's AR, ARs of other pharma companies fall short of expectations). One thing that is noticeable is the significant addition to the fixed assets of the company for FY12 and FY13 and its efficient working capital management. I spoke to a friend of mine who understands a bit of pharma industry and he said that the potential for oncology APIs is huge and it requires lot of R&D and its totally different from usual APIs which have become commoditized now. In addition, if one goes through the CRISIL's rationale (http://crisil.com/Ratings/RatingList/RatingDocs/ShilpaMedicareLimited_280213.html Link: http://crisil.com/Ratings/RatingList/RatingDocs/ShilpaMedicareLimited_280213.html )about its ratings one finds that the company has customer concentration risk. Any idea which company are they referring to?
Also, request you/Ayush/Hitesh Bhai to tell me the difference between API and Drug Intermediates.
| Shilpa Medicare | 2010 | 2011 | 2012 | 2013 | 2014E | 2015E | Growth | 9.82% | 8.29% | 33% | 22.92% |
| 234.46 | 257.48 | 278.83 | 371.32 | 456.43 | 570.54 | ||||||
| EBITDA | 82.30 | 78.22 | 65.83 | 69.83 | 100.42 | ||||||
| 35.10% | 30.38% | 23.61% | 18.81% | 22.00% | 24.00% | ||||||
| Depreciation | 9.75 | 10.42 | 11.40 | 12.75 | 20.66 | 22.82 | |||||
| Depreciation/Sales | 4.16% | 4.05% | 4.09% | 3.43% | 4.53% | 4.00% | |||||
| EBIT | 72.54 | 67.80 | 54.43 | 57.07 | 79.76 | 114.11 | |||||
| Interest | 5.02 | 1.85 | 1.44 | 1.36 | 3.75 | 5.71 | |||||
| Interest/Sales | 2.14% | 0.72% | 0.51% | 0.37% | 0.82% | 1.00% | |||||
| PBT | 67.52 | 65.95 | 52.99 | 55.72 | 76.00 | 108.40 | Taxes | 20.02 | 15.43 | 10.51 | 9.65 | 16.72 |
| 29.65% | 23.39% | 19.84% | 17.32% | 22.00% | 22.00% | PAT | 47.50 | 50.52 | 42.48 | 46.06 | 59.28 | 20.26% | 19.62% | 15.24% | 12.41% | 12.99% |
| 2.2024 | 2.2024 | 2.4024 | 2.4024 | 3.68 | 3.68 | EPS | 21.57 | 22.94 | 17.68 | 19.17 | 16.11 | 12.91 | 13.73 | 11.54 | 12.52 | 16.11 | 6.37% | -15.91% | 8.43% | 28.70% | 42.63% |
| P/E | 15.90 | 12.35 | 8.66 | ||||||||
| P/Sales | 1.97 | 1.60 | 1.28 |
Hi Ankit,
Understanding Shilpa is not easy as they are quite low profile and want to remain under the radar. However, yet if one looks at the past, the stock has been a wealth creator (ignore last 2 years) and has got the backing of some big FIIs (though backing of FIIs has often been negative too 
)
In simple terms, API is the chemical that goes into the end drug. As its a B2B model and slowly competition comes in, the returns are usually normal until and unless one is discovering/developing new APIs regularly. While formulations is selling of the end drug…so usually brand and distribution etc comes into play and one gets much better margins.
Ayush
Intermediates
Hi Ankit,
Understanding Shilpa is not easy as they are quite low profile and want to remain under the radar. However, yet if one looks at the past, the stock has been a wealth creator (ignore last 2 years) and has got the backing of some big FIIs (though backing of FIIs has often been negative too )
In simple terms, API is the chemical that goes into the end drug. As its a B2B model and slowly competition comes in, the returns are usually normal until and unless one is discovering/developing new APIs regularly. While formulations is selling of the end drug…so usually brand and distribution etc comes into play and one gets much better margins.
Ayush
Intermediates
Hi Ayush,
Did some googling about drug intermediates and found that its a stage between APIs and formulations (I understand APIs and Formulations). Isnt it?
Some other questions from my end if you or any other seniors can address:
How can we ascertain the potential of some of the APIs that the company has referred to in their FY13 AR (did some googling about 2 - 3 APIs and found that all of them referred to some or the other type of cancer)?
When is the capex that the company is currently executing (reffered in and FY12 and FY13 AR as WIP) expected to be completed? I think the formulations facility is part of that expansion only, isn’t it? Will they sell formulations under their own brand or do CRAMS?
How much is the % of CRAMS sales in their total sales for FY13 and FY12?
Any idea about the customer, CRISIL’s rationale is referring to in client concentration risk?
From what I can understand is that the kind of work they are doing is highly research oriented and that is what acts as the biggest entry barrier. One other thing that is noticeable is that Hitesh bhai, you and Donald, who understand pharma companies much better than most of us, are not much bullish about other API companies except for Shilpa.
Thanks & Regards,
Ankit
Hi Ankit,
Ankit,
Pharma Sector FAQ )- you are well advised to update yourself from here. Please explore the site sections on Resources and Basics. Many of them are created from grounds-up requirements like yours - and should be helpful for all learners.
Donald,
Thanks a lot. That was really very useful. I feel that there are lot of resources on ValuePickr that I am yet to explore.
Regards,
Ankit
Ankit,
Pharma Sector FAQ Link: …/…/…/resources/pharma-sector/pharma-sector-faq -
