Par Drugs & Chemicals Ltd

[Jay_shankarpure]

Overview
Par Drugs & Chemicals makes API’s & Fine Chemicals for domestic as well as Exports Market

Business
They have 2 business verticals namely - APIs & Fine Chemicals. 72% of Revenue comes from APIs & rest 28% from Fine Chemicals

APIs

In APIs the company makes APIs for Formulation Manufacturers. For example when a drug is formed their are many steps to it. First is KSM which is key starting material then comes your intermediate after that API and then at the end comes Formulation which is also called Finished Dosage.

It has entire range of Antacid Molecules. Antacid Means a medicine that prevents Acidity. Currently they have around 18 APIs molecules , As follows-

The company is one of the largest manufacturer in Magnesium Hydroxide, Sucralfate and
Magnesium Trisilate in India. Their uses are stated above in the Image. So basically they are a End-to-End Antacid Solution Provider. With many APIs that cater to same segment.

Fine Chemicals

Coming to Fine Chemicals. Unlike APIs fine chemicals have uses in many Sectors such as Pharmaceuticals, Adhesives , Agricultural etc etc

Currently company has around 10 fine chemicals portfolio, Which looks like this -

As you can see they have variety of uses

Capacity

Company has around 9,700 MT Capacity in Bhavnagar for APIs, Fine Chemicals & Magnesium Hydroxide.

Company also doing a 1,400 MTPA Brownfiled CAPEX in 2021 , which will add put to their capacity

Customers

Company caters to around 132 Customers & Added 20 New Customers in FY21 .Its key customers include Essential Drugs Company, Pfizer, United Phosphorus, Cipla.

R&D

The company mentioned that its R&D Team is focusing on Chronic therapies like
antidepressants, anti-diabetic and anti-bacterial. This shows that they are also entering newer & newer Therapeutic Segments & Expanding their Product Portfolio.

Financials

Financials as such looks good in FY21 Numbers -

EBITDA Margin - 26%

PAT Margin - 19%

ROCE - 22%

Risks

Risks in this business can be -

• Over Dependency on Antacid Products
• Lack of Execution of Management in terms of diversifying Product Portfolio & Capacity Expansion

Disclosure - Not Yet Invested

Here were my 2 Cents of the company. Thanks for reading & Giving your valuable time

Sources used in this Thread was Investor Presentation of the Company.

Link for it is this -

PAR_15122021173303_InvestorPresentationDecember2021.pdf

[sameernics]

@Jay_shankarpure Thanks for the details.

Few observations from my end.

a. They are enjoying one of the best operating profit margins in the industry with marquee client base.
b. Set up a new R&D for diversification into antidepressants, anti-diabetic and anti-bacterial just to reduce the dependence on Antacid products.
c. Expanded brownfield capacity to reflect in higher revenues and profits
d. Its a debt free & high promoter holding company and continues to impress on the financial ratios.
f. As per insider trading data, Promoters were indeed busy shopping their shares during Dec 2021.
g. All the expansions including R&D was setup using internal accruals.
h. The management is confident of adding another greenfield capacity in the next 2-3 years.
i. As per last intimation in Dec 2021, the company had entered into an agreement with a German trading company to increase global presence.

Discl: Invested at low levels

[Jay_shankarpure]

Here are some risks in the business pointed out by @dineshssairam Sir

Dinesh Sairam

[sameernics]

The stated objective of IPO was.

[dineshssairam]

I didn’t say it wasn’t in the DRHP.

1. Working Capital Requirements were tame before the IPO and seems to have become tame after it. But in between — just for a year — there was a massive increase in requirement and an IPO was done just to take care of it. Sounds really odd. I doubt I’ve seen an IPO just to take care of 1 year’s worth of Working Capital.

2. Also see the point on the Promoters acquiring a chunk of the company (+35% over their previous stake and almost 16% of Pre IPO size) just before the IPO.

3. Also see the Related Party Transactions, where Directors are given regular loans.

4. The Annual Report available in their website is detailed only in 2019-20 (Year of the IPO). Before and after it, they’ve given only the bare minimum (Which I presume is their MCA filing). This makes it difficult to analyse the company in detail.

Again, these may not be fishy in the end. I’m just asking questions. If you are able to answer them satisfactorily for yourself, good on you.

[sameernics]

Refer their last investor presentation available on the exchanges.

[vx294]

Par Drugs & Chemicals Ltd

Primary products

• APIs: 18 APIs which are primarily used for Antacids used for the temporary relief of heartburn, upset stomach, sour stomach or acid indigestion. A wide majority of them are Magnesium salts. Details of the various APIs have already been posted on the thread.
• Fine Chem: 10 Fine chemicals that the company markets for uses in agriculture, paint/adhesives, cleaning products and more. Again, the various chemicals are discussed in the thread. I won’t go over them again .

Rough revenue breakdown

Antancid market trend
Talking about the antacid market, it is expected to grow at a CAGR of 3.7% over the next 5 years. Growth triggers are:

1. The increasing prevalence of gastroesophageal reflux disease (GERD). Furthermore, increasing awareness about GERD is anticipated to boost the market growth.
2. Lifestyle changes of the newer generation like stress, smoking, alcohol and obesity.
3. The rising geriatric population is also contributing to the growth of the market as more that 65% of the geriatric population suffers from acid reflux.
4. Asia is forecasted to have the fastest antacid growth at 5.4%. Pfizer is known to be a key player in this market who is a client of Par Drugs & Chemicals.

Does the company have a competitive edge?

1. The company’s current API portfolio primarily consists of magnesium salts. Magnesium hydroxide is a better antacid than sodium hydrogencarbonate. Reason: Magnesium hydroxide being insoluble, it does not allow pH to increase above neutral, whereas hydrogen carbonate being soluble, its excess can make the stomach alkaline and trigger the production of even more acid. A small counter to this: Magnesium antacids are known to have more serious long term side effects like severe nausea, vomiting, or diarrhea.
2. The only other major listed competitor in India is Vasundhara Rasayans Ltd. It is 4 times smaller, fluctuating OPM%, and a 250% higher cash conversion cycle. The annual capacity only stands at 1.5kMT as compared to 9.7kMT for Par. However, they too have a strong client base with big names like Abbott and Cipla.
3. China +1 theme is applicable to this company because of countries trying to explore alternative supply chain options other than China.
4. Cashflow positive, and hence debt free and able to fund their working capital comfortably. They are generating good return on their assets, ROA = 13.4%.

Raw material breakup (rough)

Caustic Soda Lye prices have fallen significantly and looks like it can help the company achieve good margins in the coming quarters:

Key risks

1. Side effects of antacids: Antacids, especially those containing aluminum or magnesium, can have side effects such as constipation or diarrhea.
2. Sodium antacids are the most common type of antacids and dominate the segment. However, the company’s primary API portfolio consists of Magnesium salts and hence is missing out on a major chunk of the market. That being said, expansion into sodium salt APIs will not be very tough if the company decides to make that leap.
3. North America is the largest market for antacids with a revenue share of 44.0% in 2022. So there is geographic concentration risk.
4. Cyclicality: Margins are highly dependent on raw material prices. Company is not backward integrated, as would be expected for a company of this size.

[ValueMaverick]

Anyone still tracking this company? Would love to discuss some things.

Disclosure: Invested in small quantity.

[SHAIL_APTE]

I am. We can have a call, please DM me.