Since we have the complete picture for FY 2021-22, did a little digging on publicly available info on this company
- Didn’t read MDA before commenting on this company, in the earlier post
Annual Report:
Financial Year 2020-21 has been a challenging year for the company where COVID-19 spread globally. Kwality Pharmaceuticals Limited as an exporting company has supplied Remdesivir Injection to the global market and similarly Propofol injection was short in supply in various high profile countries who normally accept US FDA companies’ products. But in shortage of medicine, they have procured these injections from our company and after seeing the performance and efficacy, they registered the product of the company. The sale has gone up and it will keep on growing as many traders and the government have come to know about the medicine(s) of Kwality Pharmaceuticals Limited. They also started procuring the other items of the company. The company became world recognized and now the booking has been growing which may yield more sales and more profit. The company has also improved the infrastructure and plant & machinery which can meet the global demand. The various new R&D projects are initiated."
So Remdesivir is the topline driver and possibly even the bottomline… with Covid receding… except for pockets like NZ or China, repeatability is anybody’s guess.
- H2 & H1 results of FY 2021-22
management over-guides and under-delivers…
While releasing H1 results, management believed it can repeat its H1 performance (Sales - 330 cr; EBIDTA - 132 cr; EBIDTA margin - 43% PAT - 94 Cr) in H2 aided by (a) Strong Order book; (b) Commissioning of 2 new plants.
Cut to H2 results and the results.
(Sales - 152 cr; EBIDTA - 41 cr; EBIDTA margin - 27% PAT - 26 Cr)
Sales down by 50%, EBITA by 66% and PAT by 72%. The results are no way closer to the projections.
But there’s no candid discussion on why the projections went haywire. Instead the commentary shifted from H-o-H to Y-o-Y, which is optically appealing due to exceptional H1 performance, sustainability of which appears doubtful now.
and even the reasoning behind the excellent H1 performance varies:
@Oct 2021: Higher exports due to PIC certificate access to 20 countries and 2 new plants.
@May 2022: Increased exports to new geographies and sale of COVID products in H1.
- But a few major ponderables which flew under the radar…
i) No. of employees. 500 (March 2021); 1000+ (Oct 2021) and 1500+ (March 2022).
ii) Fixed assets trending up… 103 Crores up from 60 Crores in March 21.
iii) Inventory position (35 Crores) & receivables (35 Crores) shot up. may be in line with sales volumes.
iv) Long term loans jump by 6 Crores. may be 51% Mozambique subsidiary.
v) Short term loans jump by 50 Crores ???
vi) company has not co-operated with ICRA for the latest credit reporting. (red-flag)
Need to monitor Cash Conversion ratio.
With aggressive recruitment and doubling of fixed assets, company seems to be in expansion mode…
but P/E of 3.38 is misleading. If even accept H2 EPS of Rs. 25 as normalised (till March 2021 EPS in single digits) P/E immediately raises to 8. Considering that company operates primarily in Africa market (ICRA latest report), it is definitely not a steal. Relatively well known name like Lincoln pharma operating in similar markets trades at 8 P/E. Much well established Caplin Point Labs trades at 18 P/E.
expecting critical responses 