Fredun Pharmaceuticals - A good microcap with great potential?

Fredun Pharmaceuticals was started in the 90’s and was originally a contract manufacturing company , it has grown and come a long way and now contract manufacturing is only about 2% of the sales of the company which have frown at:

|10 Years:|37.73%|5 Years:|35.45%||3 Years:|31.93%||TTM:|39.54%|
Compounded Profit Growth
10 Years: 53.86%-5 Years: 79.40%-3 Years: 58.98%-TTM: -31.14%
the Product portfolio Anti-diabetic ingredients contribute 25% of its total sales, anti-cardiac 18%, NSAID 24% and others 33%

The company has expanded production capacity by 530% in last few years. It has been systematically investing in its productive infrastructure by installing additional granulation departments, high-speed tableting and blister packing machines. The current capacity utilisation is at 50% and it is projected to go up to 80% by mid-2020.
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Risk Analysis qualitative and quantitative ( As far as my capability allows)

Getting at the numbers , the company looks interesting and reminds me a bit of caplinpoint Labs, its targeting non US markets like Vietnam, Thailand,Turkey,Shri Lanka, Tunisania,Myanamar,Malaysia ,Combodia,Phillipenes,Mauritus to name a few and a lot of countries within Africa.
So I’m looking into the fact that does India have a structural advantage in Pharma over these countries , be a labour cost , Know how , and where exactly in the value chain does the generic Pharma company in India separate itself from those in other countries. The fact that we are one of the biggest generic players globally we can assume that there is an innate competitive advantage we have, that being said the African Market looks like a very good opportunity gives the fact that Fredun is targeting niche markets with niche verticals and has a good mix of high volume and margin products ( I have a pet dog and taking him to the vet I noticed one of their products that if I recall have seen pretty often, its in their vet nary vertical) .

Coming to the numbers the market cap is 65cr and if I average out the cash from operating actives after working capital enough to maintain current sales level giving a no growth outlook, the cash yield (Operating profit-( maintenance working capital+mainiance capex-tax)) yield comes to about 6 cr, with the current market cap of 65cr the yield is about 6/65= 9.25 yield , so if we can look at it like a callable bond , its a company assuming it does not grow anymore and decides to start paying out the money it generates now its a 9.2% yield(assuming current status co), but if someone can help me dive deeper into it and answer the following questions maybe we can get a better idea about the probability oft he future growth and margins, so far the management seems to suggest a 20-30% cagr. If that comes true its like bond yielding 9% growing at 20% cagr, the downside seems very protected if the company can even maintain status quo and not grow, but the growth I feel if it comes can generate very good returns considering we are barely paying anything for growth .
The only key risk I see that may drive the current 9% yield is 1) if sales de grow and the company must still pay its fixed costs on the unutilised capacities 2) No pricing power in the situation raw material costs go up, though so far margins have mostly improved.

Answers to the below questions will be very welcome, but points made supported by evidence would be really helpful and not inferred opinions, I’m trying to get facts here so everyone can gauge and infer the data presented as they need to and then we can debate the rest.

If we can see what is the estimated market size in each of the verticals they operate in , in the respective countries they are present in and what are the local and other competitors in those markets.
There is not much information from the management perspective , but if we can try and see if there is a moat something that distinguishes them since its a semi commoditized space ( some verticals not all) and where in the value chain that is present, cheaper working capital, faster inventory turnover? Processing efficiency due to automaton , cheaper sourcing of raw material any other things pls feel free to write, though I’m a lone wolf , Pharma is not my best sector so I though of writing about Frendun here since it does remind me allot of caplin in its early days given the target market and seeing the larger picture , they have also developed some medicines for the Indian market and bidding for government tenders ,and the big health care push coming from the government that is another space they are already preparing themselves for. Saying all this if we can figure out the odds and what the likely hood of the growth going ahead could be a very rewarding , also they have enough capacity to do a top line of 230 cr without further need for capex , current revenue is about 120 cr ttm

Disclosure : No holdings yet, but tracking carefully.


The company seems to be very data driven….& the AR is quite transparent about how they run their business. The feedback I got from associates is that Fredun Medhora is a very driven person (young too - just 33 Yrs old). And more importantly, they’re able to fulfil commitments made in previous years (ex: entering the veterinary space, other API’s etc.).

The business model is also quite simple, they focus on patents expiring in 2-3 years & try to manufacture these at the lowest prices possible (under their own brand name). Management Compensation is also not that high (0.5% of sales).

The accounts are comparatively clean. Just a few issues….OCF was -ve in 2019 (primarily coz the inventories of both raw material & finished products went up multifold - they get a 5-6% discount on bulk purchases). Also, around 12 Crs is stuck in GST refunds. Will have to see if the situation is any different in 2020.

Their borrowings have also shot up to 35 Crs this year (10 Crs in 2019). If things don’t work out as per their plans, the company might find itself in a pickle.

Other than that, can’t find much wrong with the company. Valuation at current levels don’t provide much leeway but if they keep growing revenues at the current pace, won’t be much of an issue.

Disc: Not invested (but closely tracking)


Hello everyone. I have some points to add here:

  • They are doing niche products in Anti-diabetes which only 1-2 players in India have the licenses to do.
  • Margin expansion is expected to be the big trigger here. FY 21 annual report says-“as planned by FY-23 we are going to achieve economies of scale in all our production lines.”
  • Another trigger could be new product launches- the company’s product portfolio has expanded from around 63 products in 2007 to 427 in 2019. Further, FY21 AR says- “we are set for exciting product launches this year” and “the company is also set to launch its line of Nutritional and Comeseutical products by the end of this year.”
  • Pet grooming, Cosmeceuticals, Nutraceuticals are some of high margins products in the pipeline.
  • They have also been able to deliver on guidance. Here is a snippet from their investor presentation of 2019:


They did 134 Cr in FY21 against 135 Cr guidance
They have done 188 Cr in TTM against 170 Cr FY22 guidance

I too have heard good things about Mr Fredun Medhora. I have heard he works 15 hours a day and is very passionate about the business.

Disc- no holdings as of now. Tracking closely. Will update the disclosure as and when required.


Some Corporate Governance of the company red flags highlighted on twitter


Latest investor presentation

Disc- have a small tracking position


Fredun Pharma recently management meet up notes.

  • Can do 450-500 Cr of Sales from Palghar Plant
  • Might set up a new plant if further capacities are needed

Generic business (Fredun Gx - India) :

i) Expects to cross 200 Cr sales by FY-26 with 14% PAT Margins ; 300 Cr sales by FY-27
ii) Starting with 17 States - 22 CHA points - 300 distributors in each CHA
iii) Reason of entering domestic market - Generic is the future in India
iv) Sales by its own brand

Pet Care biz : (Freossi Own brand)

i) Only manufacturer of MCHC in India - 2nd largest in Asia
ii) Targeting premium products with average prices being higher ~ 4-digits
iii) Plans to enter into pet supplements, pet food and pet grooming
iv) In Pet food segment, fredun supplies MCHC to the producer based out of Bangalore
v) Sales by its own brand

Nutrition biz : (Fredun Nutrition)

i) Targets 12-15 Cr Sales in FY-22 from Nutraceuticals biz
ii) Will supply to 44 countries
iii) Validation ongoing for nutraceutical products in UAE
iii) Sales by its own brand

EMU Oil : (Bird n Beauty)

i) Focused on premium products - skin, nails, haircare
ii) Targets 30 Cr top-line in next 3 years

Vision : Management team at Fredun is very hungry for growth and targets 1000 Cr of Sales in next 5 years.


Fredun Pharma Q3 highlights

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Is anyone actively tracking this? Or the enthusiasm has gone down with price!? Would love to know more views…

Actively tracking it. As per the management guidance, this can do a top line of 400 Cr with OPM in double digits. Below I have done some number crunching

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What sources you are using for guidance

Fredun_Pharma_Bagging_Orders_28_Nov_2022.pdf (464.7 KB)

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You seem to be expecting a big March quarter based on your estimates. Around 90 Crs of topline with OPM of 10% can result in a PAT of 12 Crs for FY23. Let’s see if it plays out as estimated.Based on the growth projected for FY24, the stock seems fairly undervalued. Will have to see if they walk the talk.

Yes expecting around 90 Cr sales for Q4-FY23. Management has guided for 25-27% growth for FY-23. FY-22 Fredun did sales of 222 and this year it should be around 280 Cr as per the guidance.

Available at dirt cheap valuations if anyone has 3 years view.

Disc - Invested and views are biased.

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How do you find it cheap? Could you elaborate on that. On TTM basis, it’s a bit expensive. What are the growth projections you are considering? Thanks

Find it cheap on a 3 year forward earning basis and not on TTM basis. Please go through the recent Investor presentations shared by the management.


I do not understand if the management is so confident how come they are continuously reducing their stake in the company ? you will not see this happening in a company worth 440Cr and trying to grow at 30%. Why would promoter reduce their stakes - > Borrowings are growing and promoter holding is reducing ? Is it for capital expansion ?

Disc: invested.


Yes, look at preferential equity offered, it’s because of that

Fredun pharma starts off Q1-FY24 with really good set of numbers.

Top line growth YoY - 28%
Bottom line growth YoY - 155%

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