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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

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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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  • 1QFY22 revenues up 33% YoY, PAT up 26% and EPS up 26% YoY.
  • If one extrapolates +26% EPS for full year, the company should deliver FY22E EPS of Rs76.
  • At the current stock price of Rs954 the stock trades at 12.6x 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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