Bharat Parenterals - Small cap pharma with multi-year growth potential?

Hello all, this would really be my first post here at VP… would request others to chime in with observations.

Quick summary: This company is growing profits at decent pace of around 15-20% and trading at cheap valuations of about 6.4 times TTM EPS (Market cap. of Rs. 215 cr). Increasing R&D expenses gives some confidence on possibility of venturing in specialized nature of drugs but company has not disclosed anything on that. Balance sheet also looks good with low debt. Some red flags include unrelated investments/loans & advances, promoter compensation and zero dividends. I am not too savvy with the products which they sell but all products look more on the generic side. Exports are ~50% of sales and rising as a % of overall sales.

Final take: Looks decent on fundamentals and attractive on valuations but I am a bit concerned on some of the corporate governance lapses (described below under Red flags). Also, not to sure about their competitive landscape.

Company description
“Bharat Parenterals Ltd. is a Gujarat based pharmaceutical company, established in 1992 by Mr. Ramesh Desai, who started the company with a vision of making world class affordable medicines and to take it to the forefront of contract manufacturing units in Gujarat. Under the chairmanship of Mr. Desai, the company has moved ahead as a research driven and forward looking pharmaceutical company with a dedicated facility for antiretroviral drugs added over time to its already existing facility of general and B-lactum group of drugs. As a fully integrated company we have in-house R&D, business development,manufacturing and regulatory compliance capabilities. Our clients range from small biopharmaceuticals startup to some of the world’s largest pharmaceutical companies.”

Some key highlights

  1. PnL: Profits up CAGR 20% in last 5 years, but no dividends to shareholders. Revenue growth CAGR of 14% in 5 years.

  2. Balance sheet: Anemic growth in Fixed assets; Reduced borrowings; Unrelated Loans and Advances in B/S somewhat rising

  3. R&D expense almost doubled!

  4. Products:

  5. Debtor days reducing

  6. AR 18-19: Management discussion and analysis
    “With more than 500 formulations to choose, a strong formulation development base and coveted WHO-cGMP certificate to its credit, Bharat Parenterals Limited has already made an export presence across the globe. The large scale modern production facility at Haripura, Savli is WHO-cGMP certified and abides by its stringent norms. Its processes are ISO 9001:2000 certified as well over years, Bharat Parenterals Limited has sharpened its production expertise, built modern production lines and consolidated manufacturing processes, which conform to international standards.”
    Opportunities and Threats: The Company is looking at different opportunities in untapped markets and also across a value chain. It plans for alliances with business associates in the global market, giving a huge boost to the products that it deals in. We are fully conscious of our responsibility toward our customers. Our efforts are directed toward the fulfillment of customer satisfaction through the quality of products. As the consolidation of this industry gains momentum, the need to develop a dedicated team of skilled manpower assumes urgency and importance. We will continue to focus on training and motivation of manpower so as to develop teams of qualified and skilled personnel to effectively discharge their responsibilities in a number of projects and activities. It is, in this context, which we have been working towards promoting the skills and professionalism of our employees to cope with and focus on the challenges of change and growth.”
    Outlook: The Company is focusing on its core business of manufacturing and marketing of formulations. Research and development has been put on fast track for cost competitiveness and to comply with the regulatory market. Cost rationalization and management control at all levels are practiced to ensure operational efficiency in the sphere of manufacturing and marketing. Armed with strong resources base and a vision to be a leading manufacturer of formulations, the company is poised to unleash its true potentials to meet the challenges and exploit growth opportunities ahead.”

Red Flags

  1. AR 2014-15: Said paid no dividend due to future expansion planning (same language used for all AR’s until 2018-2019)

But no apparent increase in Fixed assets! (Gross block growth is uneven)

  1. Debtors written off in FY18-19


  1. More than 4 fold increase in promoters’ salary and some unusual payments to Shital Shah!

  2. Income from unrelated sources

  3. Investment in unrelated Mumbai property!

Source: Screener, Bharat Parenterals


Any idea on what drugs they are selling/specialising?

How do they differentiate themselves?

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Below is the list of drugs as per their website(Bharat Parenterals). They all look generic in nature.

I have no idea how they differentiate but as I can see most customers are located in Nigeria, Kenya, Sri Lanka, Myanmar or India and since I don’t see any specialized drugs, it seems their game is low cost production and tapping un/under-regulated markets (something similar to Caplin Point Labs)

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Below is a list of some more products found from Varenyam (wholly owned subsidiary of Bharat Parenterals Limited) Varenyam Healthcare

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Looks like they have sold the subsidiary (Varenyam).
The buyers happen to be the promoters.


What are your thoughts? The subsidiary accounted for 3cr of revenues last year and its been sold for 25 Lakhs.

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Looks like Varenyam made loss of about Rs 1.3cr in FY19 but that figure might include some common expenses which Bharat Parenterals doesn’t disclose.

If we assume (pure assumptions with no evidence) PAT margins of about 10% (roughly equal to Bharat Parenterals PAT margins for FY19/20) then looks like they sold Varenyam for less than 1 TTM PE!!

Below excerpts from 2019 AR.




From the limited information we have, Is it fair to assume the promoters bought the subsidiary for self at a big bargain? I would like to think so. Not a good sign, is it?

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Given the assumptions involved, we still can’t say that for sure. But it does create doubt in eyes of minority shareholders (given limited disclosures).
Definitely, an amber flag on corporate governance.

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It’s not Amber @KushalKasliwal
All the things manufactured by Bharat Parenterals are being marketed by Varenyam Health …

It’s a red flag…

Same Promoter handelling two companies…one Pvt and one public … conflict of interest comes in picture… how do we differentiate how much Varenyam earns and how much Bharat Parenteral earns…

Disclosure : Holding tracking position but finding out more


thanks Paresh for bringing this up.
I didn’t knew that Varenyam markets all things manufactured by Bharat Parenterals. Where did you get this info ?
I am seeing the below from 2019 AR.

Don’t read Annual reports only.

Read Varenyam Site, it’s Just sales company

“Varenyam Healthcare is in the business of ethical sales and marketing of pharmaceutical products in the Indian subcontinent”

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If Varenyam is 99% subsidiary of Bharat Parenterals, then how does it matter?

News from couple of months ago but answers the query raised above