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Bajaj Healthcare - API and FDF Manufacturer

I saw there is an existing new thread on Bajaj Healthcare which is closed. The person who started is not updating the same so that it can be opened, I guess. Since I intend to provide more information I am hoping this one remains open. Alternatively I can move this information there if that thread is opened

Would request @vikas_sinha who has been holder of Bajaj Healthcare for a longer time to add anything if I have missed

What does the company do?

  • Incorporated in 1993 Bajaj Healthcare Limited is manufacturer of APIs, intermediates and finished formulations. It is one the emerging global manufacturers of high-volume high-value pharma products. Company has a presence in 51 countries globally
  • It got listed on the stock exchange, on BSE- SME Platform in 2016 and migrated to the BSE mainboard in 2019. It is not listed on NSE yet.
  • APIs: Ascorbic Acid, CH Base and Its Derivatives, Citicoline Sodium, Carbamazepine, Theobromine, Ferrous Ascorbate, Doxofylline, Oxcarbazepine, Choline Bitartrate and its derivatives Octenidine Hydrochloride, Calcium Phosphoryl Chlorine Cloride
  • Finished Dosages: Cellin 500, Septran Ds Tablet, Aspirin Gasto Resistant Tablets and Ecosprin Tablet, among others.

Investor PPT

Thesis

  • Company is trying to evolve product mix from APIs to FDFs. FDF sales contributed to 10% of revenues in FY21 v/s 6% in FY20 v/s 2% in FY19. More the contribution from FDFs higher the margins
  • Company is to increase presence in the key therapeutic areas such as pain management, anti-malaria and tapeworm infection in the API segment which are high on value and low on volume.
  • Focused on regular new product addition to portfolio to support commercial launches on patent expiry
  • Guidance for FY22: Management believes it can grow revenues 18 to 22% for FY 22, driven by addition of new capacities through acquired assets, products related to Covid-19, generics. Margins will moderate in some segments.

Market Cap and Valuations

  • Company has a market cap of (Rs1272crs)
  • FY21 profits Rs83crs. Stock trades at a P/E of 15.3x FY21

Key shareholders in the company

  • Promoters hold 67.26% of the company
  • No institutional holding in the company. Did not notice any PMS or AIF holding it also

Key Negatives

  • Its another API company which is potentially prone to competition
  • Not enough information if it has any competitive advantages or just got lucky last year due to Covid related drugs
  • Recent fire accident This is to inform you that there was a fire accident at one of our unit situated on Plot no. 1717/ 1718, GIDC Panoli, Tal - Ankleshwar, Dist. - Bharuch, Gujarat - 394116 in the first half today, i.e. July 11, 2021. Due to prompt action by alert staff the fire was brought under control and no loss or injury to human life has occurred in the incidence. However, the Company is ascertaining the extent of loss and has already informed to the Insurance Company as the entire factory and goods therein are adequately insured. Company is taking steps to ensure normal operation at the plant at the earliest. Any further material development in this regard will be updated.

Financials

Other news
July 7: Bajaj Healthcare Limited (BHL) a leading manufacturer of APIs,
Intermediates and Formulations, has received a licence from DRDO to Manufacture and Market
of “2-Deoxy-D-Glucose” (2-DG) as approved medication for the treatment of COVID-19 patients.

June 28: Bajaj Healthcare Limited (BHL) a leading manufacturer of APIs, Intermediates and
Formulations, are pleased to announce that it has moved the Indian Patent Office requesting to grant a
compulsory license for manufacturing & supply of Covid-19 drug “Baricitinib” (API and Formulation).
Currently, Eli Lilly and company has received Emergency Use Authorization (EUA) from U.S. Food and
Drug Administration (FDA) for the distribution and emergency use of “Baricitinib” to be used in
combination with remdesivir in hospitalized adult and pediatric patients aged more than two years with
suspected or laboratory confirmed COVID-19 requiring supplemental oxygen, invasive mechanical
ventilation, or extracorporeal membrane oxygenation (ECMO).

May 28: Bajaj Healthcare Limited (BHL) a leading manufacturer of APIs,
Intermediates and Formulations, has announced the launch of “Posaconazole API” used in
treating Mucormycosis (Black Fungus) infection in Covid-19 patients. BHL has received approval
from FDA Gandhi Nagar, Gujarat (India), to manufacture and market “Posaconazole API” as
approved medication for treating Mucormycosis in India and it will commence its commercial
production from 1st week of June 2021.

May 6: Bajaj Healthcare Limited (BHL) a leading manufacturer of APIs,
Intermediates and Formulations, has announced the launch of “Ivejaj” (Ivermectin) an AntiParasitic Drug now widely used in control & treatment for Covid-19 patients. BHL has received
approval from India’s drug regulator, to manufacture and market “Ivejaj” the oral Ivermectin
approved medication in India for the treatment of COVID-19 from 6th May 2021

May 4: Bajaj Healthcare Limited (BHL) a leading manufacturer of APIs,
Intermediates and Formulations, has announced the launch of “Favijaj” (Favipiravir) an antiviral
drug used for treating patients suffering from influenza virus and has proved to be effective over
COVID patients. BHL has received approval from India’s drug regulator, to manufacture
and market “Favijaj” the oral Favipiravir approved medication in India for the treatment of
COVID-19 from 4th May 2021.

Disclosure: Invested

7 Likes

Hi Venkatesh - I was also studying this company and had the below observations. Would be interested to get your thoughts -

Does the Co. have any patents?
How does it R&D capabilities compare with other Cos in the same industry? Overall,
how does performance compared to industry - both from capital allocation perspective as well as understanding what stands Bajaj apart?
Thanks for uploading investor presentation. It mentions increase exports for higher realizations. However, data shows that its been reducing. In 2018, was 24% and 2020 was 20% though no. of countries have decreased from 51 to 42 in same period. Similarly, sales growth has slowed down 41% to 10% with margins hovering around same. Has this changed?
Noticed that Mar 21 results reflect a turnaround driven by bulk drugs volume. How much of this is attributed to COVID? Is this sustainable?
Though YoY sales increased, QoQ decrease in sales in Mar 21. If Pharma was an exception to COVID lockdown, then what’s the reason?
Is Interest getting capitalized (could not find notes to accounts for Mar 21) as inteerst cost in P&L is same though debt has increased drastically in B/S, unless borrowing were made in late part of the year?
Increase in share capital from 7 to 14 Cr in Mar 2020 with promoter & public shareholding remaining same. Cash flow on screener reflects proceeds from shares as Nil. Wasn’t able to tie this. Any insights? What am I missing?
Dividends: In last 10 years, only distributed dividend twice
Debtor and inventory went down - good sign
Margin per segment results - YE Mar 21: Bulk - 23%; formulations - 15% (was in loss LY though this is high margin low volume business - what’s the reason for turnaround? Is it volume?)
While mgmt had mentioned they want to increase formulation business, segment assets reflect higher increase in bulk drugs (and not formulation) from 2020 to 2021
Inventory in B/S has grown by 3 times - is this because of raw material as Co indicated in investor ppt to reduce dependency on China for raw material? How much % comes from China?
How is pricing power? Can it pass on RM increase? If these are generic drugs, then in line with govt vision to provide at low cost, would there be pricing pressure?

Maharashtra Pollution Control Board (“MPCB”) had issued a to BHL directing the closure of operations
at its unit situated at Plot No. N-216 & 217, MIDC, Tarapur, Boisar – 401506 for alleged violation of the
provisions of Water (Prevention and Control of Pollution) Act 1974, Air (Prevention and Control
Pollution) Act 1981 and the Rules made.

And further with reference to our letter for intimation of minor fire accident at Plot No. N-128 MIDC
Tarapur, Boisar and closure of said unit to conduct Fire Safety Audit for safe processing infrastructure before starting a manufacturing activities. BHL wish to update the exchange that:

 Plot No. N-216 & 217, MIDC Tarapur, Boisar: The competent authority viz Maharashtra Pollution Control Board has given its consent to restart its manufacturing activities at the unit situated at Plot No.: N-216 & 217, MIDC Tarapur, Boisar
 Plot No. N-128, MIDC Tarapur, Boisar: The Company has successfully completed Fire Safety Audit for safe processing infrastructure of its manufacturing unit situated at Plot No.: N-128, MIDC Tarapur, Boisar and received Maharashtra Pollution Control Board consent to restart its manufacturing activities at the unit situated at Plot No.: N-128 MIDC Tarapur, Boisar

Does the Co. have any patents?
It makes APIs and FDF for other pharma companies. So basically is a contract manufacturer. Does not hold patents

How does it R&D capabilities compare with other Cos in the same industry? Overall,
Dont know. Dont want to guess

how does performance compared to industry - both from capital allocation perspective as well as understanding what stands Bajaj apart?
Its a decent company. Not the best and not the worst. If you want the best maybe you should buy a Divis or a Laurus. Then you will have to pay a higher price (read valuations) also.

Thanks for uploading investor presentation. It mentions increase exports for higher realizations. However, data shows that its been reducing. In 2018, was 24% and 2020 was 20% though no. of countries have decreased from 51 to 42 in same period. Similarly, sales growth has slowed down 41% to 10% with margins hovering around same. Has this changed?

FY19 sales is Rs797mn and FY21 sales is Rs926mn in exports. So exports has increased. Domestic sales has grown faster than exports.

Noticed that Mar 21 results reflect a turnaround driven by bulk drugs volume. How much of this is attributed to COVID? Is this sustainable?
Dont know for sure. All I know is company has guided for 18-20% sales growth for FY22

Though YoY sales increased, QoQ decrease in sales in Mar 21. If Pharma was an exception to COVID lockdown, then what’s the reason?
Dont know

Is Interest getting capitalized (could not find notes to accounts for Mar 21) as interst cost in P&L is same though debt has increased drastically in B/S, unless borrowing were made in late part of the year?
Can answer this only if I get access to FY21 annual report schedules

Increase in share capital from 7 to 14 Cr in Mar 2020 with promoter & public shareholding remaining same. Cash flow on screener reflects proceeds from shares as Nil. Wasn’t able to tie this. Any insights? What am I missing?
1:1 bonus issue.

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 Revenue from operations increased by 33 % in Q1FY22 driven by formulations +256%
 The EBITDA increased by 30% led by change in product mix. The EBITDA margins have minutely moderated due to increase in raw material cost and lesser realizatons in the formulation business.
 Finance cost has increased by 36% from Rs. 20.48 mn in Q1 FY21 to Rs. 27.93 mn in Q1 FY22,
mainly because of increase in long term borrowings for asset acquisitions.
 Net profit increased by 26% in Q1 FY22.
 If one extrapolates +26% EPS for full year, the company should deliver FY22E EPS of Rs76.
 At the current stock price of Rs892 the stock trades at 11.7x FY22E which seems quite cheap to me

There is a meeting of the Board on Friday, 13th August, 2021 to sub-division/ stock split of shares
Disclosure: Invested

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If one extrapolates +26% growth in EPS for full year, the company should deliver FY22E EPS of Rs76. At the current stock price of Rs896 the stock trades at 11.8x FY22E which seems quite cheap to me

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It is classified in Bulk Drugs Industry which is prone for high competition and there is no negotiating power with the buyers. H2 will be good for all API companies whose products are in demand. I think we need to dig thru the products it sells. For which much info is not available. Hence only when it changes its strategy it will get a higher multiple. We need to understand the business first before extrapolating any numbers. Higher multiple depends on the business and not on financials. Financials are only for efficiency and governance and .it ultimately reflects strength of the business.

You yourself say H2 will be good for all API companies whose product is in demand.

Higher multiple depends on the business and not on financials.
Where am I arguing for higher multiples. Even if multiples hold and EPS grows wont you get 26% stock returns?

BTW even Laurus is a bulk drugs company!

I think we need to dig thru the products it sells. For which much info is not available.
Products mentioned above. Why do you say there is no information. Add the following to it Nimesulide, 2-Deoxy-D-Glucose, Baricitinib, Posaconazole API, Ivermectin and Favipiravir

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API segment is very competitive. API for Vitamin C and Chlorhexidine ( hand sanitizers and mouth wash ) are not niche. There is a demand for these due to COVID and demand can taper out. Please tell me one pharma having a rice mill. Why should they have a tie-up with a condoms manufacturing company. Formulations showing losses even after supplying to GSK and USV. This shows no pricing power in formulations. Revlimed has a sales of $12 bn (Natco). I am trying to find out the last year sale of Nimesulide.

Do I have answers to all your questions? No. However, will try to give some information. Please decide for yourself if it answers atleast some of your queries:

API segment is very competitive.
Agreed. No arguments.

API for Vitamin C
Yes Vitamin C is very competitive as there is dumping from China. Here is the potential solution to that problem. Commerce Ministry Suggests Imposition of Anti Dumping Duty On Chinese Vitamin C Imports

Chlorhexidine ( hand sanitizers and mouth wash ) are not niche
Agreed they are not niche.

There is a demand for these due to COVID and demand can taper out.
Yes they will taper out. When Natco revenues from Copaxone has tapered out and revenues from Revlimid will taper out as more competition comes in (Dr. Reddy and Biocon…)…and Copaxone and Revlimid are niche, most definitely chlorhexidine revenues will taper out.

But they can be replaced by news products. “Nimesulide, 2-Deoxy-D-Glucose, Baricitinib, Posaconazole API, Ivermectin and Favipiravir” these are all new products…and there can be more

Please tell me one pharma having a rice mill. Why should they have a tie-up with a condoms manufacturing company.

I had answered some of these questions on the Route Mobile thread where someone asked "Route Mobile Promoters have ownership in few loss-making companies having presence in hotel, travel and gaming industries. Isn’t it lack of focus?"

And my answer was, “Yes it is lack of focus. In an ideal world you would not like such distractions. They own a hotel in Goa which is managed day to day by Accord Group. They also own stakes in a travel company and Cobx gaming. Most first generation enterpreneurs try their hand at 3 or 4 businesses. One works out which they focus on and ignore/ focus less on the remaining. Then again is this something an investor should be worried about. Most certainly.”

So do we need to worry about the rice mill and tie up with the condom manufacturer?
Most certainly. Thanks for highlighting as I was not aware of the same. Let me see if I can dig up more information about the same.

Formulations showing losses even after supplying to GSK and USV. This shows no pricing power in formulations.

Losses in formulations?

Revlimed has a sales of $12 bn (Natco). I am trying to find out the last year sale of Nimesulide.
Not sure why your are comparing Natco to Bajaj Healthcare. Its like comparing apples and oranges

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One more thing. Here is the IPO prospectus which ideally I should have read and attached when I started this thread. Even I need to read it. I guess @sethufan must have dug out the rice mill and condom manufacturer from there. https://www.bseindia.com/downloads/ipo/2016219143630BHL-DP.pdf

No comparison boss trying to find out the market size which is not readily available . Whether this new launch will help them. Ideally we should analyse product wise market size and share. But only big brokerages will have access to this.

More information on existing products and new launches in FY21 from the latest annual report
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Client Base


API Outlook
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FDF Outlook
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Intermediates Outlook
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