Company - Makers Lab
Current Market Cap - 99 Crs(Nov’24)
Origination
Incorporated 40 years ago in 1984, Makers Lab is a pharmaceutical company manufacturing and marketing around 200 formulations.
Product Portfolio
General Health Therapeutic Segments:
Anti-Malarial, Antibiotic, Antibacterial, Anti-Inflammatory, Analgesic, Anti-Diabetics, and treatments for other common diseases. The company’s top formulation brands include Duramol (Paracetamol), Artemak-AB (α-β Arteether), Loroquin (Chloroquine), Nimuwin (Nimesulide), Coffwin (Anti-Cough Range), and Exylin (Amoxicillin range).
Recent Product Developments
- Manufacturing of ophthalmic eye drops.
Promoters
IPCA Labs Promoter Group:
- Kaygee Investments Private Limited
- Paschim Chemicals Pvt Ltd
- Prashant Godha
- Premchand Godha
- Usha Premchand Godha
Brief About Promoter/Management
MLL is promoted by IPCA’s promoters, with Premchand Godha, the Managing Director of IPCA, also serving as the promoter of MLL. He is a Chartered Accountant with over four decades of experience in the pharma industry.
Nilesh Jain and Saahil Parikh are whole-time Directors in MLL, handling its day-to-day operations:
- Saahil Parikh: Holds a B.Sc. in Biochemistry from Gujarat University and a diploma in management studies from Ahmedabad Management Association. With over two decades of experience in the pharma industry, he has managed production, quality control, projects, and general management.
- Nilesh Jain: Holds a B.Com and a Master’s degree in Management Studies from Mumbai University. He has over 20 years of experience in materials management, marketing management, and business development.
Credit Rating
- Latest Credit Rating: Oct 2024 - CARE BBB+ (Stable); No change since 2019.
Investment Thesis Pointers
Positives
- Promoter Group
- The Godha family, as promoters, provides a strong pillar of support. They have consistently infused funds when required.
- Promoter shareholding increased from 58.37% in Dec 2021 to 61.28% in Sep 2024.
- Acquisition of Resonance Specialties Limited (RSL)
- In 2021, Makers became the parent of Resonance, holding a 45.48% stake in the company.
- Resonance is one of the few companies in India catering to pyridine chemistry (another prominent player is Jubilant Ingrevia). Pyridine chemistry finds applications in agrochemicals, pharmaceuticals, nutrition, fine chemicals, oilfield chemicals, electronics, solvents, etc.
- As per the latest two Annual Reports, Resonance is commercializing new specialty chemicals/intermediates with uses across multiple industries, including pharmaceuticals. If scaled up, it presents an interesting opportunity.
- Market cap of Resonance as of Nov 2024: ₹118 Cr. Current stake of Makers valued at ~₹50 Cr (holding company discount not applied; Makers market cap - ₹99 Cr).
- Improving Debt-Equity Profile
- Sale of non-core assets shows good management intent. MLL sold land and an office building (book value ~₹8.50 Cr) to its group company IPCA for ~₹18.50 Cr in Q2 FY25, improving overall liquidity.
- Proceeds were used to repay ICD of ₹6 Cr borrowed from the promoter Kaygee in FY24 and liquidate outstanding working capital borrowings.
- Operating Leverage
- A new ophthalmic eye drops manufacturing facility in Naroda, Ahmedabad, Gujarat, was commercialized in late FY21.
- In FY24, the unit received the Eurasian Economic Union (EAEU) RU GMP Certificate, opening opportunities in the Eurasian market. While not yet a significant contributor, it could leverage operational efficiencies in the future.
- Facility Modernization and Expansion
- Upgraded and enhanced capacity at its old liquid injectable manufacturing facility in FY22-23.
- The facility is in the process of obtaining product dossier registrations for ROW (Rest of the World) countries.
- Valuation
- The company looks attractive on a price-to-sales basis, considering it is the parent of Resonance Specialties.
Negatives
- Underperformance in Topline and Bottomline
- Both Makers and Resonance performed strongly during COVID-19 due to increased demand for some products. However, post-pandemic, revenue growth has been stagnant, and margins have been squeezed due to raw material inflation and reduced demand.
- Lack of Information
- No investor calls or presentations. Information is limited to Annual Reports and Credit Rating Reports.
- Very few investors share information or analysis on this company via platforms like Twitter/spaces (Makers came into the radar post twitter spaces by Sajal Bhai).
- Vulnerability to Raw Material Price Volatility
- Margin compression post-COVID-19 highlights this issue.
- Microcap Challenges
- Being a microcap with large promoter shareholding, liquidity is extremely low for buying/selling the stock.
Conclusion
An interesting play with multiple optionalities to explore. However, the most critical monitorable is management execution. Can they scale a microcap with a subsidiary possessing unique chemistry expertise into something bigger? Only time will tell.
Note: I am not a SEBI-registered analyst/advisor. My opinions might be biased as I am invested in the company. No transactions in the last 30 days. Kindly do your own due diligence before investing.