IOLCP - Synergy in operations made monopoly in product integration

sinhalgaurav · September 27, 2020, 7:04am

Management does seem confident of Sales for remaining year; I think the real question is whether they can take the success to other molecules and can generate the return on capital anywhere close to current levels. It seems to be a 2 product play for short term , and bet on Jockey in longer run.
Disclosure - invested but a small portion of portfolio.

shah_murari · September 30, 2020, 6:49am

Dear ValuePickr Experts,

As a learner seeking valuable comments on valuation of company…

Solara Vs IOLCP ( Select only because of the same Industry - No other rationale)

Sales Growth

IOLCP

TRENDS:	10 YEARS	7 YEARS	5 YEARS	3 YEARS	RECENT
Sales Growth	19.31%	21.61%	37.55%	38.66%	12.41%

Solara

TRENDS:	10 YEARS	7 YEARS	5 YEARS	3 YEARS	RECENT
Sales Growth					1.38%
OPM	16.40%	16.40%	16.40%	16.40%	20.86%

IOLCP - Performance Good…

2 . OPM
IOLCP

TRENDS:	10 YEARS	7 YEARS	5 YEARS	3 YEARS	RECENT	BEST
OPM	19.53%	20.06%	21.48%	24.19%	31.23%	31.23%

Solara:

TRENDS:	10 YEARS	7 YEARS	5 YEARS	3 YEARS	RECENT	BEST
OPM	16.40%	16.40%	16.40%	16.40%	20.86%	20.86%

IOLCP Performance is good

Borrowing

IOLCP - Company has not any long term outstanding debt, Virtually debt free.

Solara

Equity Share Capital	24.67	25.77	26.85
Reserves	739.30	826.10	963.09
Borrowings	632.87	538.06	706.79

IOLCP - Virtual Debt free

RoE / RoCE

IOLCP

Return on Equity	4%	3%	1%	2%	-33%	-22%	2%	13%	51%	45%
Return on Capital Emp		9%	11%	12%	-3%	4%	12%	15%	56%	69%

Solara

Return on Equity	0%	7%	12%
Return on Capital Emp	4%	10%	12%

IOLCP - Good Returns.

Debtors Day

Solara - 63

IOLCP - 54

IOLCP - Good Numbers

EPS

IOLCP

Narration	Mar-11	Mar-12	Mar-13	Mar-14	Mar-15	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20
EPS	2.40	1.85	0.61	1.15	-13.97	-7.12	0.83	4.93	41.60	63.50

Solara

Narration	Mar-18	Mar-19	Mar-20	Trailing
EPS	0.15	23.07	42.61	36.75

Some concerns on IOLCP
Depended on single Product -
-all capacities of ibuprofen are online now and still demand is more than supply. Management assured they will meet minimum 15-16 usd for ibuprofen. Plan to maintain it for next 1-2 years.
-management confirmed capex of 150-200 cr each year for next 2-3 years.
Recently added to Nifty 500 and other indices, Also under ASM.

8 Valuation

IOLCP - P/E -10.7

SOLARA - P/E - 27

What I am missing here as selection of stock as no Mutual Fund entered in IOLCP (Whats restricting them to enter at lower valuation),

Basically I want to learn from experts the criteria which not following in favor of investment which I am not able to figure it out.

Regards,
Murari Shah

ukdube · October 9, 2020, 2:24am

Lots of news regarding BASF Texas plant restarting now and Ibuprofen prices war due to its impact.BASF pricw $18 while IOL sells at $16.Can knowledgeable community in the group throw some light and educate us.

Disc -Invested.

jaman_valuepickr · October 9, 2020, 2:45am

This entire message looks misguiding! It is an old message.
Even if we assume that the massage has some contains.
Then let us analyze logically.
It says, BASF price is $18, so where is the threat? on the other hand, IOL Chem is selling @ $15-16. USA Co will buy from Indian Co, so where is the threat?

As the BASF (USA) will be selling @ $20, BASF investors should be worried about it because of the higher price. The message is not explaining how the price of Ibuprofen will come down. Solara Active has increased capacity, will they stop it?
IOL Chem has a backward integration plant. Practically IOLCP has a better position than BASF, Solara, and any other ibuprofen producers in the world.

All these news are factored in the price. In my opinion, IOLCP is the cheapest company in the pharma sector with strong fundamentals.

My few may be biased as I am holding this company. You do your own analysis before taking any decision.

Kaaz91 · October 9, 2020, 3:01pm

The message seems to be circulated vide malafide intent, as i have read through the ARs of the company i think IOL is the only company which is fully backward integrated for ibuprofen. as far as cost is concerned in my opinion this company will always has edge as long as this remains only company with backward integration or in case some other player develops a unique process that cuts down costs. it can fight price wars with US company. worry should be how long the prices of api will sustain?

reacharjunr · October 16, 2020, 4:55am

IOL has fallen today below 700 levels. Huw is Ibuprofen pricing now? Is there any change to fundamentals? As per Mr. Vijay Garg in AGM, they were confident to achieve revenue growth of 25% resulting in a turnover of 2300 crores -2400 crores. Is this still achievable?

Ashishatech · October 18, 2020, 4:52am

Ibuprofen October prices are hovering around $16 and no change in fundamentals.

ukdube · October 27, 2020, 5:28pm

Veeraiah_Bandlamudi · November 6, 2020, 12:48pm

satish58 · November 11, 2020, 12:54pm

There was a concal which was arranged by the company today. Anyone having the gist of what was discussed in this ? Or investor presentation

shah_murari · November 11, 2020, 2:54pm

MSCI also said it will add 30 India stocks to its global smallcap index and remove 8 as part of the semi-annual review.

IOLCP Added

Earlier this month added to some of the Indian indices now added to MSCI index.

Let’s see till what horizon company will remain undervalued compare to its peers.

Regards,
Murari Shah

kkrai · November 11, 2020, 5:52pm

IOLCP finally hosted an earnings call. The call was well attended; analysts from Motilal AMC, Sunidhi Securities, Dalal & Broacha, and many other analysts & individual investors were there. Mr. Vijay Garg (Joint MD) answered most of the questions besides for couple of questions CFO pitched in.

Following are my quick notes

General Comments

Mr. Vijay Garg came across as a great listener and very well grounded person. He answered questions for 80 minutes, provided great insights about the business and strategy, thanked folks who asked questions, and still in the end explicitly said if there are unanswered questions then please reach out to us.
Present breadwinners – Ibuprofen, Ethyl Acetate and Iso Butyl Benzene(IBB). Next inline Metformin, Lamotrigine, Fenofibrateand, Clopidogrel, UDCA and PantoprazoleSodium.
Expect the Ibuprofen prices to hold at current levels in the short to medium term. The current price is USD 15-16 per kg.
Spot sales for Ibuprofen have almost vanished with macro factors stabilizing. Company has mostly long-term contract with clients.
Company aims to grow at 15-20% (topline) every year. Plans to increase the profit contribution from non-Ibuprofen to 50% in the medium term.
Company plans to go for 150-200 crores of Capex every year over the medium term. Firm no to debt. All capex would be supported by cash flows.

Capacity

Ibuprofen – capacity of 12000 MT per year. 90% capacity utilization and can be further increased. About 5000 MT production in the first half of the year. The capacity is 35% of overall world’s Ibuprofen capacity. Other significant players – Solara, CN players, BASF.
Ethyl Acetate – 87000 TPA and IBB – 12000 TPA. A lot of traction in chemical business because of businesses opening up again after the lockdown.
Metformin – 11200 TPA. At full capacity, it would contribute 250 crores to the topline. WW capacity for Metformin is about 100000 TPA and the demand is growing at ~5% per year.

Product Pipeline

Available APIs (there contribution to topline to increase) Metformin, Clopidogrel, Pantoprazole, UDCA, Lamotrigine, Fenofibrate.
Development phase APIs=> Gabapentin - Antiepileptic, Fexofenadine Hydrochloride – Anti-allergic, Losartan - Antihypertensive, Dextromethorphan Hydrobromide - Antitussive, Albendazole-Antiprotozoal Valsartan - Antihypertensive, Folic Acid –Dietary Supplement, Levetiracetam-Antiepileptic

Business Strategy

Aim to grow topline 15-20% every year.
Target development of only those products which could give good margin.
Continue to reduce dependence on Ibuprofen by increasing share of other products.

CN Factor and PLI scheme

Only dependence for Ibuprofen was for Sodium. Now company has found an alternative.
For Metformin all companies and so even IOLCP is dependent on CN for KSM.
Has not applied for PLI schemes yet but discussions within company are happening.

Financials

Q2 topline was 538 crores vs 452.4 crores Q2 last year. Profit in Q2 stood at 127 crores vs 88 crores yoy.
Debt is 21 crores. Reduced from 421 crores 2.5 years ago.
Cash on books is 281 crores.
Cash flow from operations (without working capital changes) in first half of the year was 326 crores.

Overall Impression

I came out from the earnings call far more satisfied with the management and their strategy. I like the commitment to growth, reducing dependence on Ibuprofen, healthy pipeline of products, firm no to debt and many more things.

I may have heard and/or interpreted things incorrectly. This is not a sell or buy call. I am not an analyst, and in general my knowledge is very-very limited. I own shares of IOLCP and have strong ownership bias.

Thanks,

Krishna

Edit 1: I also found that the investor presentation has a lot of great information http://www.bseindia.com/xml-data/corpfiling/AttachLive/714378f4-be14-4e6d-91f4-e4c99af3475a.pdf

reacharjunr · December 13, 2020, 3:33pm

Ibuprofen prices are still stable around USD 16 to USD 18.

https://www.pharmacompass.com/price/ibuprofen-3672

reacharjunr · December 22, 2020, 10:04am

Can somebody explain why IOL is trading at low PE of 10 compared to its peer Solara trading at PE of 25. In the last con call, I remember Mr. Vijay Garg has repeatedly mentioned that company is slowly moving towards diversification by adding other formulation products such as metformin, pantoprazole, gabapentin thereby resulting in risk mitigation by over concentration on Ibuprofen.

satish58 · December 24, 2020, 5:32am

Kindly go up the thread and view the post of 30 Sep by Shri Murari. He has drawn a detailed comparison and also questioned the same. When all these products which are being launched or already launched start showing in the balance sheet in the next 2-3 Qtrs , I expect IOL to catch up and then overtake Solara. It is slowly inching up - - the Q3 result will show the direction of up move.

Vivekpakki · January 8, 2021, 6:38am

hi all, I wanted to understand whether 49% public holding is restricting IOLCP movement upwards. Need experts opinion to understand why the company is so undervalued.

Tar · January 8, 2021, 2:26pm

The company is moving from a high debt commodity single product manufacturer to a debt free diversified business. Business transformations take a while and stock has re rate from a PE of 3 to mid teens in a few months. It’s a slow process, you should not expect the stock to keep climbing like it has. That’s not normal.

Vivekpakki · January 10, 2021, 12:19pm

Thanks for the reply. I was checking the fundamentals of the company and was not clear why the valuations were so low. Your answer seems logical. I will do more research on this company and will update.

nipunmohta · January 11, 2021, 2:02pm

As per the December 2020 shareholding pattern, Ashish Kacholia has also built a position in the stock.

Disc : Invested

pennywise · January 27, 2021, 5:43am

Its quite strange that Mutual Fund holdings os 0% for IOLCP. Any obvious reasons for this?