HDFC securities has buy call for targetof140 with 1/1.5 yrs time horizon.
HDFC Securities has recommended FKONCO amongst its 2013 PICKS-
http://www.hdfcsec.com/data/docs/PBWM%20New%20Year%20Picks%20Dec12.pdf
Results just out… seem to be quite good here…
http://www.bseindia.com/xml-data/corpfiling/AttachLive/Fresenius_Kabi_Oncology_Ltd_130213_Rst.pdf
9M/Fy-13 v/s 9M/Fy-12:
Total Income up 25% to 503.07 Cr from 402.53 Cr (Fy/11-12: 524.32 Cr)
EBIDTA More than doubled to 131.65 Cr from 55.96 Cr (Fy/11-12: 67.45 Cr)
Profit after tax (Before xtraordinary item) more than quadrupled to 88.35 Cr from 22.51 Cr (Fy/11-12: 18.43 Cr)
Net Profit up 80% to 88.35 Cr from 49.27 Cr (Fy/11-12: 50.95 Cr)
Total Raw material costs as a %ge to Income is 29.1% v/s 42.5%
Employee costs to Income is 10.5% v/s 10.7%
R&D expenses to Income is 17.1% v/s 12%
Other expenses to Income is 17.2% v/s 20.9%
Tax Rate 22.4% v/s 24.2%
Decrease in raw material costs and other expenses led to doubling of EBIDTA
SEGMENTS:
Formulations: Sales up 29%, PBIT more than doubled, margin 32% v/s 15.9%
Bulk Drugs: Sales up 38%, PBIT DOWN 44%, margin 7.5% v/s 18.6%
So, All the gains came from formulations Division.
Reported 9-month EPS 5.58 v/s 3.11 (Fy/11-12: 3.22)
On 13/02/2013, stock on NSE closed at Rs. 112/- Up 13%
Extraordinary market conditions contributed to the high profit during the quarter - so states the management.
Eagerly waiting for Hit Ji’s views.
Some queries from my end:-
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What is “other operating income” in this case? (Seen a sharp jump here, sales are flat QoQ)
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RM consumption is sharply down… reasons?
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Possible reasons for much higher Research & Dev Exp (is the other operating income something to do with research)?
Co has reported much higher profits inspite of same income from ops (QoQ). It would be nice if the pharma experts could throw light on it…
Just a thought- sudden rise in no. of people around me (family, friends, friends/relatives of friends) being diagnosed of cancer last 3-6 mths… Maybe we should explore the oncology segment more closely…
Hi Atul,
Yes, very nice results and a timely call during last qtr. The concern in my mind is that the mgmt has written that the above results are good due to extra-ordinary market conditions…what is this?
Also the changes in several heads are huge. Look at the R&D exp. It would be better if we can figure out things better here.
Ayush
Fresenius Kabi Oncology puts production on hold at API plant
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Fresenius Kabi Oncology has announced that during a recent routine US FDA inspection at company’s API plant located at Kalyani, District Nadia, West Bengal, (India), US FDA made certain observations relating to GMP non-conformities in respect of manufacturing, documentation practices and product testing. However, all finished products conform to approved standards and specifications. The company has immediately taken steps to implement remedial measures and has voluntarily put the production on hold. The company’s dosage form plants in Himachal Pradesh continue normal production.
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Source: Capital Market
Had mailed the co. select queries based on recent qtrly results. Here’s the reply-
Dear Mr. Sethia,
Please find below point wise reply to your queries:
1). In your notes to results, you have mentioned âExtra ordinary market conditions contributed to the high profit during the quarterâ. Could you pls throw more light on what you mean by extra ordinary market conditions? Are the conditions of one-time nature which you donât foresee in the forthcoming quarters?
Ans: Main reasons for growth in profitability are high profit margin in sales and foreign exchange gains. Future profitability will mainly depend upon the prevailing business and market conditions and regulatory environment.
2). Any particular reason for sharp decline in bulk drug margins?
Ans: The input cost of the bulk drug has increased and other production expenses have also gone up, resulting in lesser margins in bulk drugs.
3). Sir, your net profits has increased by nearly 79% QoQ, in spite of net sales being flat. It has been noticed that your raw material consumption has drastically come down, and your other operating income has sharply increased. Could you pls share the reasons for this drastic reduction in material costs, and reasons/components of other operating income? Is this operating income of regular recurring nature or infrequent?
Ans: During the quarter, company got bulk sale order for products where the profit margin was high. So our overall cost of production went down.
Other operating income consists of Research & Development income and export incentive. The Company has entered into an agreement for doing contract R&D on behalf of Fresenius Kabi Germany and its affiliates. During the current quarter, R&D expenses incurred in such contract R&D were high, which resulted in higher R&D income. This is recurring in nature but the quantum of income is dependent on R&D activities carried on their behalf.
4). Reasons for sharp rise in R&D expenditure? Is the other operating income linked to this R&D expenditure in any ways?
Ans: Please refer to answer to Q 3 above.
5). Addition to the block was 71.18 cr in FY2012 and Capital work in progress as of Sept â12 was 173.83 cr., Whereas sales is stagnant. Whether this includes expenditure on R&D till it is billed to the parent co.? If not, when it will be transform into sales?
Ans: The capitalization is expected to happen in next financial year. However, we cannot comment on future sales at this stage.
6). When is the expansion likely to be completed?
Ans: Expansion/upgradation is an on-going process, which is carried out to fulfil various business requirements. However, most of the current expansion projects are expected to be completed by next financial year.
7). As of 31stDec, the promoters are holding 81% equity in the co. Has the co. finalized any OFS/delisting plan, or what else is the co. planning considering the June deadline for reducing promoter stake to 75%.
Ans: The first trench of dilution (9%) has already been done by the promoters. The promoters are closely monitoring the regulatory environment and appropriate action should be taken by them for meeting the compliance requirements in due course.
PS:If there are any other queries, one may post here. Will followup at co. end again.
(Pardon my slightly naive/unprofessional manner of posting queries, need to work on it a bit)
-Atul
Hi all,
As there are still some niggling queries coming in, am trying to get someone to visit the co. arnd 13th/15th of this mth… It would be nice if you could chip in as the co seems interesting and has been delivering good results over past few qtrs.
Since I dont understand pharma space as well, it would be nice if everyone could chip in in there own way.
Ayush/hitesh/others- pls help in raising queries.
-Atul
Hi Atul,
Great to see you taking the effort. I think the key things to understand would be:
1). The intention of the parent co towards the Indian subsidiary. The parent co is huge MNC and if they arefocusedon this listed entity, then it can be a huge wealth creator…while if they are focusing on some unlisted entity in India, it would be a negative
2). Do they plan to make Fresenius their R&Dcenterto outsource the work or would they be setting up manufacturingfacilitiesto take advantage of lower cost of production?
3). Ask about the growth prospects and margins going forward
4). Ask about the product basket and the expansion of the same going forward
Ayush
PS: Above are quick queries which came to mind
hi atul,
some queries from my side:
1). Going forward, how much contribution does the company target from the formulations and non formulations division.
2). What is percentage revenues from oncology/non oncology in overall scenario and any target ratio which the company aims at?
3). What can be the growth drivers for the company going forward? any triggers in terms of outsourcing for its parent from India subsidiary? (this has been one of the investment arguments in fk onco)
regards
hitesh.
Parenteral Drugs To Sell Manufacturing Unit To Fresenius Kabi-
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