Penned a note myself after a very long time. Here it goes:
Gufic Biosciences Limited was established in 1970 and the business of two over the counter (OTC) products of Gufic was sold to Ranbaxy Limited in 1997 for Rs. 80 cr when it had revenue of Rs. 85 cr and profit of Rs. 5 cr. In 1997, it started afresh by making several OTC products like Roll-On, Stretch Nil, Onergy (energy supplement), Shapers (Sanitary Napkin) and also Hybrid Seed and Tissue Culture. Also, they were doing some contract manufacturing of injectables in small scale. But doing so many things took the company nowhere for next 12 years as in none of the areas they had scale advantage or unique ability to serve a larger target customer base.
In 2007, Mr. Pranav Choksi, grandson of the founder joined the business, who just completed MS in 2006 in Bio Technology from John Hopkins University. He over next 15 years given some shape to the business using more scale-based approach in some areas and technology focussed approach in other areas.
They were the first company in India to import Lyophilization systems (freeze drying system). Lyophilizers are used to remove water & moisture and make food and pharma grade product transportable over long distance. This is one of the best ways to make biotechnologically manufactured injectables as these are not sufficiently stable in aqueous form. In 1997, the had capacity to manufacture only 55,000 vials which by now has been raised to 48 million vials and further establishing a new capacity in Indore for another 36 million vials and one dedicated capacity in their existing plant in Navsari as Unit 3 for 3 million vials for carbapenem variety. Carbapenem is used to treat acute and severe bacterial infections. So, by Q1 FY 24, their total capacity would be about 87 million vials for 50+ different types of injectables, manufactured for 70+ partners. Nowadays as much as 25% of new injectables discovered and approved are coming in Lyophilized form.
But from the scale of manufacturing, it’s evident that the process chemistry has been commoditized and margin would be fixed but due to their scale of operation, competition would be limited. Also, this new plant in Indore would seek for US and EU regulatory compliance, so the margin may improve marginally over longer term.
Apart from this Gufic has moderately bigger size business in Natural / Herbal / Nutraceutical products. Gufic Sallaki Oil Linment is a moderately successful product in area of muscle and joint pain relief. They also have smaller businesses in critical care, pain management, infertility, orthopaedic and gynaecological generic formulations. They make these under their own brands and also for third parties. Their export revenues in these areas are increasing consistently and presently forms 15% of revenue which they plan to take to 25% in few years. 55% of the business come from domestic formulation business, 25% from contract manufacturing and rest 5% from manufacturing few APIs which they primarily use for backward integration.
They ended last year with Rs. 780 cr revenue but almost Rs. 170 cr of that revenue was one time due to contract manufacturing of Remdesivir and Thymosin Alpha for their own, and third-party sales. It had demand surge due to Covid pandemic. If we remove these, then core revenue grew to Rs. 610 cr in FY 22 from Rs. 480 cr in FY 21 (25%). Their contract manufacturing clients include Abbott, Serum Institute of India, Fresenius Kabi, Lupin, Hetero, Sun Pharma, Cipla, Alkem, Zydus, Dr. Reddy’s and Glenmark among others.
Apart from all these Gufic is creating few interesting businesses which may grow steadily and consistently over a long period if successful. These are
- They have introduced newer drug delivery mechanism in lyophilized parenterals (doses form of injection which is generally dissolved in water before administering to body). Recently they introduced dual chamber bags for Intravenous delivery of unstable compounds which needs to be diluted just before administration. It’s a Rs. 3000 cr market in India and was mostly imported. Here Gufic is first Indian manufacturer to make this.
- In early 2021 they introduced Type A Botulinum Toxin under brand name Stunnox which is Indian equivalent of Botox (manufactured by Allergen which is acquired by AbbVie in 2019). Type A Botulinum Toxin is aesthetic dermatological product which helps in temporary elimination of facial frown lines, forehead creases, wrinkles, lip lines and gummy smiles. Botox has equivalents in the names of Dysport (made by Ipsen), Xeomin (made by Merz Pharmaceuticals) and Jeuveau (made by Evolus). This is globally US$ 4 billion market but Indian market size is less than Rs. 150 cr. High cost, lack of training to administer it and lack of awareness are major reasons which kept the usage confined to extremely wealthy people. Presently the sale of Stunnox is less than Rs. 3 cr but company is using training and awareness program and we can expect a decent growth going ahead. It is made in collaboration with Prime Bio which is promoted by Prof Bal Ram Singh, who is a PhD in Bio Physical Chemistry and professor of University of Massachusetts in North Dartmouth. The company has a to share a part of profit and an undisclosed technology fee to Prime Bio. Incidentally, Prof Singh also sits in Board of Gufic as a Non-Executive Director.
- With help of Prime Bio and Prof. Bal Ram Singh, they recently introduced Zarbot, a new Type B Botulinum Toxin, which has been found effective in treatment of cerebral palsy, migraine and overactive bladder. We were unable to verify the size of opportunity here but even if it is small, can add credibility of R&D prowess of Gufic. There is only one other Type B Botulinum Toxin brand in world named Myobloc but it has use in treatment of other type of disease.
- Type A Botulinum Toxin has use in various medical conditions. One area where Gufic has started commercial level use is vaginal tightening and vaginal rejuvenation. The segment has just started and doctors are being trained on its use.
- In March ’22, Gufic entered into research and collaboration agreement with Selvax Pty, Australia to accelerate commercialization of Selvax’s cancer immunology treatment. One area where Gufic is actively involved with Selvax in pre-clinical trial for immunotherapy of pancreatic cancer. Presently this type of cancer only has symptomatic relief but no effective cure. In the long term, if the trials are successful, can act as game changer for Gufic fortune.
Last year Gufic merged Gufic Life Sciences with itself and it increased promoter holding to 75.48% from 65% level. Recently the excess 0.48% shares were sold in open market to bring the promoter holding back to maximum permissible limit of 75%. Presently the group has no other conflicting interest and every family-owned company merged with the listed entity.
Q1 ’23 sales are optically lower than Q1 ’22 because last year main sales of Covid medicines were done in this quarter. This quarter they showed a healthy operating margin of 20%. It has nominal debt in spite of large capex going on to start Indore facility. We feel, going ahead their debt level may increase a little when final set of equipments arrive but the quantum would be small. CRISIL upgraded their rating recently for all type of bank facilities of Gufic. Also, R&D expense for Gufic is about Rs. 65 cr which is expensed and it’s mostly spent in all new areas of development.
Gufic’s cash flow from operations were abysmal till few years back. It has been Rs. (-) 4.82 cr in 2018, Rs. 5.21 cr in 2019, Rs. 47.10 cr in 2020, Rs. 87.25 in 2021 and Rs. 104.44 cr in 2022. Gufic’s gross block increased from Rs. 31 cr in 2018 to Rs. 178 cr in 2022. Also, they have Rs. 41 cr WIP as on Mar ’22. They have a total debt of Rs, 61cr. They possibly use a portion of debt for capital expenditure and capitalizing a part of interest cost as interest expense is only Rs. 4.85 cr.
Disclosure standards of the company is reasonably good. CRISIL upgrade their credit facility from BBB (stable) to BBB+ (stable). They have very little related party transactions.
Disclosure: The author is a SEBI Registered Investment Adviser (RIA). The stock has been recommended to members of www.aveksatequity.com and author is also invested in the stock. Views may be biased. It is not an investment advice. Do your own due diligence if you plan to invest in this company.