ValuePickr Forum

Morepen Labs - a believable turnaround story

Morepen labs was a sensation in the 90s with ambitious growth plans. However the company suffered badly and filed for bankruptcy. (I’m not certain if the bad performance was because of the passing away of the founder, but the timelines do coincide) From a high of about 520 in March 2000 the stock price fell all the way down to 2 in Sep 2013.

Subsequently, the founder’s brother took over, they did corporate debt restructuring and gradually things started to improve.

Today, it’s a global leader in Loratadine API and intermediaries, and claims to have about 80-90% of Loratadine generics market in the US (total $2B market). That sounds right considering their revenues from Loratadine. However, the Loratadine revenues have stablized, so expecting further growth might not be wise. Last couple of years the revenues have been around 108Cr. (As an aside, here’s an interesting article about loratadine -http://www.nytimes.com/2001/03/11/magazine/the-claritin-effect-prescription-for-profit.html )

The company has however managed to introduce new API intermediaries like desloratadine, Montelukast, Atorvastin, Fexofenadine over the last few years and they’ve done exceedingly well.

Atorvastin revenues 620L in 2010-11, 2350L today.

Montelukast 2250 to 5000L (However, note that this is far short of management projections, so I’d beware of wild projections by the management)

Fexofenadine 372 to 1300L.

The home health business is growing steadily from 31Cr to ~45Cr in revenues in the same time period as above. On top of this, it has strong brands in the local market. Dr Morepen (which is a subsidiary company) is doing exceedingly well, revenue growth from 15Cr to 38Cr in the same time period as above.

Stock price? From a high of 17.05 on 23 Sep it’s now down to 8.8 or so. Reason? A ‘stable’ quarter showing no growth. Note that Morepen does not report consolidated quarters so we are not sure how Dr Morepen has performed over the last 6 months. Also, one of their major PE investors has cashed out leading to a dramatic drop in share price.

At about 400Cr Mcap and stable but growing diversified revenues of 366Cr, this sounds like a good price compared to other pharma/FMCG plays.While operating cash flows have always been positive, net cash flow too have been positive for the last 4 years.The company is expected to post a net profit for the first time after many many years (at least 8 years).

Gotchas:Contingent liabilities are also a big question mark at this point. Also"Turnarounds seldom turn" - Buffett. The company is not covered widely in the financial media. I could find only one interview by the CEO where he also discusses why the stock is a good investment (WTF?) Also there is no date on the interview and the CEO speaks of EPS around 50 so I’m not sure when this was published -http://www.indiainfoline.com/article/research-leader-speak/mr.-sushil-suri-cmd-morepen-laboratories-ltd-11743270_1.html

However, given the pros and cons and considering a relatively stable business like pharma and also subsidiary strong FMCG/devices business with strong brands, I’m positive on this stock at CMP of about 8.8

Would love to hear people’s thoughts, and also importantly, if someone can scuttlebutt that would be highly appreciated.

Disc: I’m long.

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Couple of things:

When I mentioned “subsequently” above, I meant “subsequent to the founder’s death”.

While the company has strong brands, Burnol, it’s brand with the highest recall is actually claimed by Poysha power generation and there’s an ongoing lawsuit about this. You can read more about the trademark dispute here -http://www.ipfrontline.com/depts/article.aspx?id=11815&deptid=4

Seems like a dangerous stock to be invested in, be prepared for a lot of losses

-http://www.ipfrontline.com/depts/article.aspx?id=11815&deptid=4 Link: http://www.ipfrontline.com/depts/article.aspx?id=11815&deptid=4%C2%A0

From the link (http://www.ipfrontline.com/depts/article.aspx?id=11815&deptid=4), it appears that the court case had been settled in favour of Morepen in 2007:

The court held that the defendant (Morepen labs) had been successful in conveying that its intention behind the documents rested in being treated as a nominal transaction. In this view, the Court held that the plaintiff had not been successful at making out a case for grant of injunction. The application made by the plaintiff was rejected and the suit dismissed, ordering payment of Rs. 20,000 to the defendant.

Shan

Why is the company posting losses every year for the past so many years.

The highs of Rs. 500+ achieved by the scrip a decade ago was because the former founder was a famous punter. This was well known in Delhi where i used to work, at that time.

… And the good news continues, fantastic results this Q: http://www.bseindia.com/xml-data/corpfiling/AttachLive/Morepen_Laboratories_Ltd_110215_Rst.pdf

-http://www.nytimes.com/2001/03/11/magazine/the-claritin-effect-prescription-for-profit.html Link: http://www.nytimes.com/2001/03/11/magazine/the-claritin-effect-prescription-for-profit.html plays.While years.The

Gotchas:Contingent Also"Turnarounds -http://www.indiainfoline.com/article/research-leader-speak/mr.-sushil-suri-cmd-morepen-laboratories-ltd-11743270_1.html Link: http://www.indiainfoline.com/article/research-leader-speak/mr.-sushil-suri-cmd-morepen-laboratories-ltd-11743270_1.html

Hits UC today back to nearly it’s 52wk high of 17.05 (CMP is 17) more than double the Dec low of 7.6

Results http://www.bseindia.com/xml-data/corpfiling/AttachHis/E9FB96C3_9A46_4B0F_950D_B1935B7A41BB_184816.pdf

Standalone Topline disappointed and shares are down over 30% from recent highs. There’s really nothing much to write about in the standalone part. Consolidated revenues and profit growth marches on slowly and steadily.

Potentially the only plus is the continued reduction in debt.

I’d be a buyer again in the 8-9 range and below.

Disc: long

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Beware: Please read these articles before taking and investment decisions>

http://costarfinance.com/2012/05/09/rbs-750m-marriott-sale-to-blue-coast-backed-by-starwoodfortress/

Dear theshworld,

This is strictly avoidable for saving ur hard earned money.

Rgds

Haha thanks. Back then I didn’t care much about promoter quality, only the fact that the stock was cheap. Doubled my money in Morepen, made a good sum in companies like trigyn tech and quite a few others. I’ve gotten out of most of these partially and holding on to the residual stake. Now you could say that this was my luck or you could say that this is validation of the Graham approach. :smile:
I’m still more Graham than Buffett/Bakshi et al. But I am now a bit more cautious on promoter quality but not as much as some others. For instance I’m still willing to bet on cheap companies like Indian toners.

Anyway back to Morepen, I have residual stake and I’ll continue to hold as long as the debt keeps reducing. The original thesis of pharma and strong brand in the medical devices field is still intact. It fits in my formula of companies generating FCF, reducing debt, and reasonably priced.

Disc: long, residual stake

Decent performance continues! Over 2.5x since I first posted. Debt continues to go down, both pharma and devices business doing well.

See latest results press release
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=69fd38a4-bdd1-45c1-ac9e-eb9036062931

Disc: long

Dangerous stock to be invested in.
Surprisingly the stock has been a 15 bagger in 2 years irrespective of such a terrible balance sheet.
How can people get so inspired by the turn around story that it still is intact at an excessively overstretched PE=312.78
If investors keep pumping in money blindly like this definitely its debt will continue to reduce but is that doing any good to investors?

It is an operator driven stock. Stay away from this. I had news for this some months back. Crazy valuations !!

1 Like

Growth continues to be good http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/4678B5B1_D0F2_4023_83DD_26DB54CE5B78_144631.pdf

The 4.4Cr settlement amount is definitely out of the left field but overall growth numbers are fantastic. Debt reduction continues, home appliances shows awesome growth. Morepen has apparently become the #1 anti asthamatic bulk drug
Montelukast - see http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/85A7B0FE_0A7A_4C7D_A536_77F862E75D65_190551.pdf beating big names like Mylan and Teva

I continue to hold as long as debt reduction and growth are in place. Nearly a third of long term debt was repaid in just this year!

Disc: Holding from much lower levels around Rs 8 per share, had booked part profits at 16 levels.

Hey @ishandutta2007 just saw this. For a turnaround story the right metric is Price to Sales (among many other things) and understandably the Balance Sheet would be puke-worthy. When I first posted the Price to Sales ratio was nearly at 1 whereas established players typically trade around a ratio of 7. So by that metric, Morepen was massively underpriced. Besides, read the analysis in the very first post and the growth and debt reduction has continued to sustain. Sustained debt reduction is typically an excellent indicator of FCF (if there were no FCF how could they repay debt?)

Anyway, at current prices the stock doesn’t excite me, I’m just holding on. If it goes back to teens or below I might get interested again.

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Loratidine is not any new drug , hundreds of companies have already been manufacturing it. http://www.medindia.net/drug-price/loratadine.htm
I don’t know how you get this 80-90% number either.

Loratidine came into market in 1993 but became OTC in 2002, http://www.ncbi.nlm.nih.gov/pmc/articles/PMC539854/,
It would be interesting to see growth of companies manufacturing only Loratadine post 2002 for next 2-4 years.

I agree with this part

I am hopeful on Atorvastin and Fexofenadine.
Atorvastin, Fexofenadine’s revenue seems to be growing but they don’t form even 30% of companies total revenue.
Atorvasitin has 125B$ sales globally. http://www.crainsnewyork.com/article/20111228/HEALTH_CARE/111229902
Fexofenadine became OTC in 2011. Global Sales as per 2004 is $1.87B USD(expect to be atleast 4B$ now)

summary: steady growth can be expected unless they manage to bag huge contracts in Atorvasitin. Good buy as long as valuations remains reasonable.

Disclosure: Invested small amount for tracking.

2 Likes

Here are few more facts about Dr morepen lab and it’s success story…

  1. Dr. Morepen Ltd., a wholly-owned subsidiary of Morepen Laboratories Ltd., has introduced a specialized therapy in the area of preventive cardiology and diabetology in a non-hospital environment for the first time in India.

The therapy, called External Counter Pulsation (ECP) Therapy by Renew Singapore, is a non-invasive therapy, which enhances blood flow to the heart and the body and feels just like a lower body massage. It is popularly known as Natural Bypass. It brings about a host of health benefits while being safe and surgery free. ECP therapy is a globally well-established non-invasive alternative to heart-care procedures like bypass surgery, angioplasty (stenting); and various lifestyle related ailments.

In the first phase of its expansion, Dr. Morepen plans to open around 100

NOW wellness centres in 25 top cities of India over the next three years. These centers would be a mix of company-owned centers and franchised operations.

  1. Morrepen Laboratories Ltd. has reported a 179% rise in its net profit at Rs. 7.73 crore and 17.4% rise in its net sales revenue at Rs. 141 crore in the fourth quarter (January-March) of fiscal 2016-17.

The net profit and the net sales revenue stood at Rs. 2.77 crore and Rs. 119.77 crore in the corresponding quarter of the fiscal 2015-16.

The company’s expanding global reach assisted in achieving a higher top-line in Q4 FY 2016-17. Export sales registered a growth of 29% in Q4 at Rs. 73 crore. Sales from domestic operations, however, registered a marginal growth of 7% at Rs. 68 crore.

  1. Pinfold Overseas has acquired around 2,88,97,500 shares amounting to 6.42 per cent of the total shares.
    After the acquisition, the holding of the acquirer has gone up to 8.56 per cent, it added. The acquirer does not belong to the promoter group

4.Piramal Enterprises looks to buy OTC business of Morepen Laboratories

5.financial growth of company… Turns to profit in last two years… Reduced debt and build increase reserve

Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 TTM
Sales 126.43 114.07 126.79 123.32 161.15 192.11 216.31 269.50 303.35 335.97 370.26 452.46 537.03
Expenses 130.89 105.92 209.41 131.78 161.71 182.12 209.07 251.86 274.37 290.16 323.68 392.65 477.15
Operating Profit -4.46 8.15 -82.62 -8.46 -0.56 9.99 7.24 17.64 28.98 45.81 46.58 59.81 59.88
OPM -3.53 7.14 -65.16 -6.86 -0.35 5.20 3.35 6.55 9.55 13.64 12.58 13.22 11.20
Other Income 4.68 4.83 1.84 16.18 12.14 37.91 1.04 13.05 5.70 3.69 1.36 1.17 3.20
Interest 2.89 0.87 5.52 9.59 2.63 4.01 6.23 7.96 11.61 9.89 8.63 10.41 6.99
Depreciation 69.23 46.66 46.65 46.68 45.51 45.63 45.78 46.89 45.74 45.77 38.59 34.92 33.56
Profit before tax -71.90 -34.55 -132.95 -48.55 -36.56 -1.74 -43.73 -24.16 -22.67 -6.16 0.72 15.64 22.54
Tax -24.44 0.15 24.67 0.21 0.28 0.00 -0.75 0.00 0.00 0.00 0.14 -0.14 0.00
Net Profit -47.46 -34.70 -157.62 -48.76 -36.84 -1.74 -42.98 -24.16 -22.67 -6.16 0.58 15.78 22.54
EPS (unadj) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.35
Dividend Payout 0.00

Looking to all above fact, it seems that company growing good on its old businesses and also invented a excellent ways of diversification in wellness center business.

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NPM,ROE % r very low.