IOLCP - Synergy in operations made monopoly in product integration

[Inimitable_Investor]

I found the article to be very little value add. Following things need some clarity, at least for me, to take an informed decision.

1. How difficult would it be to enter the US markets (one of the largest for ibuprofen)?
2. What are the steps taken by the company to reduce dependency on ibuprofen? What are the prospects of the non-ibuprofen portfolio?
3. Few other companies are setting up state-of-art manufacturing plants to manufacture ibuprofen in India itself. Pricing is bound to soften in the next couple of years because of oversupply. How will the company address that issue? Does it have long-term contracts(How long are the contracts?) in place to tackle these situations
4. This is something outside of the article which i feel is a risk - API space in India is getting heated up and some companies will feel the pinch in the next few years. Good thing for IOL is that it is debt-free. But it doesnt specialize in anything. Where does the company see itelf in the next five years?

Disclosure: Have a tracking position in the stock

[hafizul88]

Hello - Please find my comments for your queries.

1. Company has already shipped the ibuprofen in Q4 , so its already there.

2. Company has started to produce other APIs already, please see the below list of commercialized products, with recent WHO GMP approvals for these products, will give revenue of ~400 in FY21, that will surely reduce the dependence on ibuprofen. Also there is a good pipeline of under-development products, are in advanced stage. So, company realized the dependence factor on ibuprofen a lot earlier than us and started the hard work, fruits to come in near future.
   

   

3. ibuprofen is technology oriented products and takes minimum 3-4 years, so its not an easy thing. BASF started expansion in Germany and planned to come in 2022, but may delayed due to COVID-19. In India, Vinati is producing the raw material IBB, and IBAP those are intermediates products. Granules uses ibuprofen , does not produce. Apart from this no one else are doing anything, please share the company name which are working on producing ibuprofen, which you have talked about.

4. You have got this point totally wrong . With COVID -19 the world has been exposed to their import from China, all countries are hating China due to their misinformation about the virus, all countries are trying to reduce the dependency on China, India has already understood that their dependency for API on China is huge and need to reduce by producing APIs, chemical in India itself and reduce import, dependency from China. Cabinet has already approved some 13,000 crore fund for supporting API industry for next 5 years, more support to come for the API industry, so good times are ahead for the API company. IOL can take the benefits for the new products/APIs/Plant/expansion, which will be good. And who told you IOL has not any specializations? Its the world leader of ibuprofen with 35% global market share and only company with full backward integration and thus cheapest producer of ibuprofen - only 5-6 companies in the world do have the specialization to produce ibuprofen - many of the big giant pharma companies do not have the capability and they are customer of IOL. Apart from ibuprofen also, they have targeted high margin, high volume products, import substitution chemical as well - so they are on the right path to capture the market share and grow the company. So, study the company well, study the potential of the APIs, ask about medical benefits and potential to some Doctors , who knows this very well, from their practical experience. Some of my inputs are from a Doctor itself.

Keep researching and take an informed decision!!!

Disc - invested.

[Inimitable_Investor]

@hafizul88 Thank you for your response! I am waiting to see the impact of other products in the revenue mix. Also good to hear the company is actively looking to expand its bouquet of products according to the market trends. I read in Solara AR that they are also trying to expand into ibuprofen.

Also, thanks for clarifying the macro picture. I don’t have enough knowledge of the chemicals industry and was thinking along the usual lines of demand and supply economics.

[ridesai]

Hafiz,
The article says, in Which MD Vijay Garg has said, which is dated June 2019, that until a year back, means until June 2018, IOL Chem was only India centric player.They sold Ibuprofen in Indian market onlyand that is why until June 2018, the results were subdued as India has a cap on prices of medicine.
The opportunity arised when China became the member of Geneva-based Pharmaceutical Inspection Convention (PIC).
This is very important to read and understand.That is the finer point one can’t miss in the article.
So due to closing down of China Ibuprofen capacity which was as big as 3000 tn, which they use to export to African and European countries, that whole stake went to IOL Chem as they were able to increase the capacity and hence you can read in the article that since June 2018 80% of the increased capacity of Iburpofen of IOL Chem goes to EXPORT!
And that is why the profit has soared. That was a major break through and I must give Kudos to MD Vijay Garg to seize the oppertunity that arised because of China and he was quick enough to increase the capacity that was left going abegging. This steps of increasing the Capacity shows the managements initiative and drive to pounce on looking to expand and CAPTURE THE MARKET. Excellent foresightedness shown by Management which again demolish the doubt in MANAGEMENT!
Regarding US export which Co don’t export as of now, but I think you already mentioned it, it will be not far when USFDA will also give PASS the plant to export to USA.
After Corona , US will definately decrease the overdependence on China .
So that is why, if anyone has doubt about the results , how IOL Chem has started showing so much profit has been laid to REST. The reason can be read in the article which I posted and Hafiz that is why I wrote to that guy on Twitter thanking him for sharing this article.
It is not because the prices has gone up that the NP soared but they captured the Overseas Market after June 2018 and that is why I see this article is very important in understanding the real reason of growth IOL Chem is showing!
Holding all quantity from June 2018…picked at around 85! Good quantity I assure you all that!

[rajstock]

Very good analysis. just 1 question- Have they started exporting to US? f not, what is the issue? Their plant cleared US FDA inspection with no material observations. The latest inspection was in Q4 2019

[ridesai]

I think, Hafiz already wrote in his reply. They have already started and the reason to believe is, they increased the capacity again in 2019.
But the NP figures says, they have started.
But I believe that is non issue. I think we need to learn which point / issue we need to consider which not to , to take decision to invest. This is very important in stock market. Hanging on point which are not too important, and you lose a Multibagger.
My 35 years in stock market says that.
Like I have seen here and at other forums, investor keep thinking why it is discounted so LOW. And they just start finding faults of Co where they can justify why that Co has got low discounting. Now that is not the way to look into a Co nor into stock Market.
And when one wants everything positive, then why don’t buy Nestle or Glaxo Smith?
You are getting it at cheap valuation is the catch. That is how the multibaggers happens! All want to keep safe their money and still want to find a Multibagger. That is I think not possible.
When you asked question like, if not then what is the issue? That was a wrong question. When we have already read about the management which is so focused on growth, you can’t doubt them. That was all this article all about. How the management is? If management can create more capacity to fill the gap of China and do it so fast that Nor Granuels India or Solara Pharma can gets in , is achievement in itself !
The real thing is , MD Vijay Garg made sure IOL Chem get all the pie. No wonder he takes huge salary. He is the architect of IOL Chem success story which is unfolding.

[rajstock]

Thanks. By “issue”, I did not mean issue with the company, but whether any other condition apart from FDA is required for US market, which is a big opportunity and currently sourcing 90% Ibuprofen from china. If US exports have already started, it is a further positive development.I am convinced about this company growth and am invested from 170 levels onwards

[hafizul88]

Thanks Raju bro-----yes, management has done very well with ibuprofen , however market somehow does not want to give the proportionate value because of single product dependency, price fluctuations etc…but then, diversification already started in a big way and we should see the revenue from those additional APIs in FY 21----the more it diversifies , the more PE value the stock will get, so the company has to continue the diversification at very good speed and also commercialize other under-development APIs/chemicals. Overall, I am happy with their efforts so far on the diversification front but they need to continue. Long way to go…!!!

[hafizul88]

Joint MD Mr. Garg mentioned about the US exports of ibuprofen in one of the interviews, we should get confirmation/clarity in the Q4 results/press release or next interview of him.

[hafizul88]

I had a quick look at the Solara AR few weeks back, it was not in detail , so might have missed it, but can you please paste the portion here for us to know if any details like timelines or quantum of expansion, personally i did not hear about their expansion of ibuprofen capacity…thanks.

[jaman_valuepickr]

This can also be found in August 19 credit rating.

[ridesai]

There is always a flag product for any Pharma Co which becomes the Cash cow, and here with IOL Chem, Ibuprofen is the cash cow.
There has been instances where market didn’t gave high discounting.
I remember RJ once said, Lupin was going cheap even though it had big range of products and then what happened with Lupin everyone knows.
Mcdowell was going abegging when Ramesh Damani identified it and then what happened is a history.
And here the major profit comes from Ibuprofen and nothing wrong in it. It is not the only product IOL Chem manufacture. Even with Dr Reddy’s, Divis , Lupin etc not all products gives huge profit. So is with IOL Chem.
As I have written earlier , the profit started coming up after June 2018. So maybe market wanted to see if it sustains. But the Ibuprofen profit came so huge that in almost 18 months from June 2018, the Co became debt FREE and also declared Dividend.
So sometimes, market don’t recognize some Cos, and here the profit started coming up just 18 months back.
Let players accumulate it, let the liquidity be sucked up…
IOl Chem is moving up when the markets are down.
It never closed above 256 until recently , which was the price after it went in for 20% upper circuit.Next day it went to 291 and retraced back at 280 and then after NSE put in ASM, it didn’t go for lower circuit but closed above 256 which was the price after the 20% circuit was opened for IOL Chem.recently.
I am absolutely delighted with what is going on with IOL Chem price wise. IOL Chem has never traded above 250 . For the 1st time it is traded over 250 for a week which is a very good sign. Stock is giving the headwinds what is coming! Samaj sako to samjo…

[ankit_tripathi]

On weekly chart it sustained and closed above 250 which was very Important. Next week very important as per technical to confirm breakout on weekly chart basis.

[Krishna1]

While the profitability of the company is very strong at this point.

I would urge people to use extreme caution while purchasing such stocks just looking at the near term profitability.

Some other members have also pointed to some red flags like related party transactions with other promoter group entities.

The company has done a remarkable job in paying off their debt but the price of the product they sell can change very quickly and only those who can keep track of these things or those who can follow stop losses should invest here.

A few stocks where people got carried away are optical fiber stocks,graphite stocks,even pharma stocks like Wockhardt which went up based on profitability from a single drug( Metoprolol succinate).

So ride the trend but don’t get carried away.

[ridesai]

Thanks for cautioning all members. I appreciate it

[hafizul88]

Hi Krishna,

Thanks for the caution. Yes - two issues with the stock—1) over dependency on ibuprofen , which is being taken care at good speed by diversification and commercialization of other APIs, which is going to bring ~400 crore of revenue in FY21 - so this concern should re resolved slowly over the time quarter after quarter…2) Related party transaction with promoter group entity - this is the only issue on which we are not getting any further details apart from the total value of the transaction in AR…this is not a proven issue, until we find they are manipulating the price of the transaction- related party transaction is not a crime in itself, but when they manipulate price of transaction , it becomes a fraud-----which is not the case here till now----as we even dont know if they are manipulating the price-----related party transaction does tell us that they are manipulating price and committing fraud----as a shareholder , we can ask for these additional details like exactly what raw material they are buying and at what price and then check with open market price and if see they are doing it at higher price then it will be a proven Red flag…till that , lets call it a doubtful item and not a fraud.

Also, not sure why u call it near term profitability - when they have already got the WHO GMP approval for new APIs and already started the production on expanded capacity and going to bring ~400 crore additional revenue by those new APIs in FY21 ( excluding ibuprofen). So, to me its a medium term story, but yes, need to track the progress closely. With debt free status, FCF will be huge now , even after paying dividend, hence further expansion is expected, along with global JV/collaboration, they already looking for these opportunities.

BTW, tracking the stock, specially in mid and small cap, is extremely important, more so with current market situation…gone are the days of “buy and sleep”…now it is “buy and track continuously”…if someone cannot do that, then they have to buy Nestle kind of stock with 80-90 PE valuations.

So, its all about the risk/reward evaluation - with the amount of cash flow IOL is generating, any other management would have got the valuation at 20 PE----and CMP would have been 70(EPS)*20 PE(minimum) = 1400 Rs. per share----we are getting that at 250 just because of the doubt over the management, mainly on the related party transaction item…thats too not a proven one…hence , we strongly feel, the stock is eligible for the re-rating and command better PE than current PE-----rest market is supreme and everyone can be wrong…

No buy/sell recommendation from my side. People can research the company in detail, evaluate the risk/reward ratio and take the decision as per the tracking/risk taking capacity!!!

Disc - invested.

[hafizul88]

March 2020 SHP Update…

14 new FIIs have bought 7.5 lakh plus shares, FII holding doubled at 2.61% from 1.3% last quarter…good news for a promising small cap like IOLCP…FII must have done better due diligence than retailers and their increase in holding should increase confidence level among retailers…floating will also get reduced…happy that we observed the story even before them…long way to go…let us continue close tracking–cheers…!!!

[hafizul88]

Thanks Anand for your help with the ibuprofen market price on a continued basis, to all of us----request you to please share the Jan, Feb, March prices…Thanks in advance!!!

[Inimitable_Investor]

IBUPROFen
Somebody had already shared this link in the thread. Might be useful to check prices of Ibuprofen

[hafizul88]

Its a premium service in screener.in…so we cannot check as we dont have premium account …!!