Ranvir's Portfolio

Q&A: Questions & Answers Portfolio Q&A
629

Notes from AR 2020-21 iro Lux Industries -

  1. Established in 1957. Currently a leader in branded inner wear segment in India. Has 7 state of the art manufacturing facilities across India with a cumulative capacity to make 30 cr garment pieces per year. ) Company’s 03 plants are in WB, 02 in TN,01 in Punjab and 01 in UP. Lux is the number 1 mid segment inner wear brand in India. Also the largest inner wear exporter from India. Exports to 46 countries - mostly to LMIC countries in Asia and Africa.

  2. Last 3 yrs sales, EBITDA, EBITDA margins data -

Sales - 1216 cr, 1674 cr, 1964 cr
EBITDA - 186 cr, 275 cr, 392 cr
EBITDA margins - 15.3%, 16.4%,19.9%
( Margin expansion in a pandemic year with expanded distribution and tighter control on working capital which reduced by 38 days was the highlight of the FY and points towards improvement in financial quality of the company )

  1. Key initiatives this year-

(a) Courageously launched retail venture ( Cozy World ) when most others stayed defensive - Every mid segment Indian hosiery company has always relied on marketing and distribution. Lux’s extension into retail is a first of its kind initiative to engage directly with the consumers. Launched 04 Cozy world stores in the FY. Aim to scale this to 50 stores in FY 21-22 ( company owned or franchised). Aim to target 5-10 pc sales through these EBOs in 3 years.

(b) Extending distribution presence in South India - Current region wise sales break up -
Central - 18 pc
East - 28 pc
North - 30 pc
West - 21 pc
South - 3 pc

Company’s penetration in South should be increasingly visible from FY 21-22.

(c) Enhancing online presence - Created a proprietary team to build the E-commerce business. Entered into marketing alliances with Flipkart, Amazon, Myntra, Ajia and Nykaa. Online revenues doubled this year. Aim to hit 2pc of sales through online channels in the foreseeable future.

(d) Thrust on premiumization - Reinforced premium brand presence with the launch of One8 brand. This segment has completely different dynamics, packaging, designs, touch and feel. The premium brands - ONN, One8 and Luz Premiums ( for Exports ) reported far higher growth than company average. Currently 12 pc of company revenues come from these premium brands. The premium brands grew by 7 pc during the FY ( this to me is a key matrix )

  1. Pandemic induced shift from unorganised to organised - this was really visible this year due better avlb of labour and bank credit to organised players.

  2. Company now focusing on ensuring better financial hygiene by tightening its liquidity standards to moderate its working capital. Lockdowns tested this resolve but the company persisted with its liquidity discipline. Net result was reduction in receivables cycle by 12 pc. Corrospondingly, the short term debt moderated from 228 cr to 108 cr.

  3. New product launches - were restrained launches due pandemic. Launched women’s tunic from 100 pc rayon that enhances softness. Also launched night suits, side pattern tracks and beginner’s brassiere under the Lyra brand. Other launches included - ONN junior hoodie jackets, sweatshirts and One8 boxers.

  4. Chairman’s message - Revolves around 3Ms

M1 - Milleniels - born between 1981 and 1996 - show distinctly different consumer behaviour vs the older generation. This is now the company’s core audience.

M2 - Markets - Are transitioning from economy to mid and premium segments. Plus the shift from unorganised to the organised. Lux believes that Women and Children’s segments are on the cusp of a take off. Plus the new reality of online markets - towards which Lux is actively working.

M3- Merger - Merged Lux Industries, JM Hosiery and Ebell fashions Pvt ltd on 01 Apr 2020. Benefits - Company gains scale, ability to attract better talent, Reinforces that promoters have no other business interests ,making Lux enter women’s segment as Lyra was under the Ebell fashions umbrella. Merger also save admin costs.

  1. Improving liquidity helps in buying efficiency. Cash on books on 31 Mar 19 was 7 cr vs 84 cr on 31 Mar 20 which helps buy RMs in bulk during the start of the season when stocks are adequate and prices are lower. This improved liquidity should only increase going forward.

Disc : invested, biased

Regards,
Ranvir Dehal

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630

Notes from AR- 2020-21 iro ASTER DM LTD -

  1. Key infra -

One of the largest integrated healthcare player in Middle East and an emerging player in India. Operations spread across 7 countries including GCC and India. Company’s infrastructure includes the following -

Hospitals - 27. In GCC - 13, In India - 14
Pharmacies - 223, all in GCC
Clinics - 115. 106 in GCC, 09 in India
Bed capacity - 4907. In GCC - 1150. In India - 3757
Doctors - 2970. In GCC -1297, In India - 1673
Nurses - 6512. In GCC - 2790, In India - 3722
New business vertical - Aster Labs in India

GCC business accounts for 81 pc of the business as on 31 Mar 21

  1. Expansion - setting up hospitals in Caribbean and Cayman Islands. On domestic front, company proactively developing Aster labs and Pharmacy distribution network in India.

  2. Revenues during the year @ 8608 cr vs 8652 cr, down 1 pc despite more than a Qtr’s revenue being severely impacted by lockdowns. GCC revenues at 6954 vs 7021 cr. India revenues at 1654 vs 1631 cr. Consolidated EBITDA at 1077 cr and Consolidated PAT stood at 148 cr. Indian business saw good recovery in Q3 and Q4, first two Qtrs were impacted by lockdowns. In GCC, Q1 and Q4 were impacted due first and second waves.
    Further to mitigate the impact of Pandemic, other sources of revenues were prioritised like - tele consultation, homecare, diagnostics and pharmacies.

For the next FY…with greater degree of vaccinations and various hospitals in India reaching maturity, outlook is positive.

  1. Capex in progress - Aster Whitefield at Bangaluru, Aster Aadhar in Kolhapur, Aster mother and child at Kottakkal. At GCC, new Aster hospitals in Oman and Sharjah would be completed and put into ops in FY 22. Construction for Aster hospital at Cayman shall also begin in 2022. Total projected outlay for FY 22 is 580 cr.

  2. Last 5 yrs data-

Sales - 5931,6721,7963,8652,8608 cr
EBITDA - 332, 613,863,1258,1077 cr
EBITDA margins - 5.6,9.1,10.8.14.5,12.5
PAT - NA, 139,335,296,148 cr

  1. Segment wise revenue and EBITDA breakup -

                Hospitals......Pharmacies........Clinics

Revenues - 54pc…23pc…23pc
EBITDA - 57pc…19pc…24pc

             GCC vs India

Sales… 81pc vs 19 pc
EBITDA… 85 pc vs 15 pc

  1. India hospitals / clinics breakdown -

03/05 in Karnataka
05/nil in Kerala
04/04 in AP
01/nil in Maharashtra
01/nil in Telangana

  1. GCC Hospitals, Pharmacies, Clinics breakdown -

UAE - 08 Hospitals, 91 clinics,199 Pharmacies
Qatar - 06 clinics, 5 Pharmacies
Oman - 04 hospitals, 7 clinics, 7 Pharmacies
Jordan - 10 pharmacies
Bahrain - 02 clinics, 2 pharmacies
Saudi - 01 Hospital

  1. Company building a complete healthcare infrastructure across GCC and South India. Clinics act as initial touch points transferring patients to hospitals for tertiary care. India operations also act as a rich source of talent acquisition for GCC ops. Company was the first to introduce telemedicine in UAE. Enrolled 800 doctors to provide consultations to patients in different countries. Also started homeware services like availability of on call doctors, nurses, sample collections from home, vaccinations at home etc. Also providing at home ICU services in India with remote monitoring…again a unique initiative.

  2. Aster labs - currently operational in Kerala and Karnataka.

Key things to monitor -

My observations - Reduction in Debt, improvement in return ratios. Becasue if this is achieved, ASTER can then start to command valuations at par with at least KIMS and Narayan Hrudulaya. Q2 FY 22 results were good. If they can be sustained for 1-2 metres, a re-rating should be imminent.

Disc: holding, tracking position

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631

Notes from AR- FY 20-21 iro Fortis Healthcare -

  1. Hospitals and SRL diagnostics network-

Currently running a total of 27 hospitals, employing 5000+ doctors, 6000+ nurses and a total of 4100 + operating beds

Hospitals breakdown -

HP - 01
Punjab - 03
Delhi NCR - 07
Uttarakhand - 01
Maharashtra - 04
WB - 02
Chattisgarh - 01
Karnataka - 05
TN -02
Rajasthan -01

SRL Diagnostics ( A subsidiary ) - Runs 425 labs across India. Employs 400+ doctors and 3500+ lab technicians

  1. Last 3 years performance -

Sales - 4469, 4632,4030 cr
ENITDA - 318,662,451 cr
EBITDA margins - 7,14,11 pc
PAT - (-) 224, 91,(-) 56 cr

Hospitals occupancy - 67,68,53pc ( started the year with 37 pc occupancy in Q1 due COVID and ended at 64 pc by Q4)
ARPOB( avg revenue per operating bed ) - 1.52,1.59,1.58 cr

SRL -
No of tests - 3.01,3.04,2.35 cr
Avg realisation per test - Rs 334,333,437

  1. Year was full of covid led disruptions and delay in elective surgeries. Recovery from Sep onwards was observed, still fell short of FY 20 revenues. On the digital front, telemedicine and video based consults increased rapidly across the Fortis network touching a high of 15pc of total consults.

  2. For FY 22, focus will be on revenue growth initiatives, engaging with key corporate clients, strengthening the franchise in key catchment areas and leveraging the digital platforms. Will continue to focus on specialities like - oncology, cardiology, nephrology, neurology, pulmonology to improve margins. At SRL, focus will be on new age technologies and innovative diagnostic solutions.

  3. Aim to add over 1300 new beds in pre existing facilities at Shalimar Bagh, Mulund, Noida, FMRI, Mohali, Anandpur and a few others.

  4. Launched MyFortis app - offers one stop shop to book appointments, store and view medical records, conduct video/tele consults, organise medical delivery etc.

  5. Board has given the approval to change the name of company and subsidiaries to PARKWAY, an international healthcare brand. IHH remains the largest shareholder and continues to support the growth plans of the company. SRL will also undergo a change in the name.

Disc : invested, biased

1 Like
632

AR notes iro JB Chemicals and Pharma for FY 2021-22 -

  1. KKR ( PE firm ) holds controlling stake in the firm. Company has 07 state of the art manufacturing units in Gujarat. Currently ranked 28th ( up from 32 in last year ) in IPM with 05 brands in top 300. These are -

Rantac ( to treat indigestion, heart burn, acid reflux)
Metrogyl ( antibiotic for parasitic infections )
Nicardia ( to treat high BP )
Cilacar ( to treat high BP )
Cilacar T ( to treat high BP )

  1. Core therapy segments - Hypertension, Gastroenterology, Nephrology, Cardiology, Dentistry and Paediatrics. In FY 21, realigned our structure and portfolio to ensure focus on lifecycle management of flagship brands. Next priority is to scale up R&D and business development towards building a progressive portfolio in US, SA,Russia, SA, API and CMO business.

  2. New products / therapies entered -

Introduced new products in Nephrology

Entered - Respiratory, Diabetic categories

Introduced - Lozenges as Nicotine replacement therapies named - NOSMOK lozenges

  1. Actively exploring possible M&A opportunities which can complement our strengths and accelerate our performance in key segments.

  2. Third largest lozenges manufacturing capability globally. Already exporting to 30 countries. A leading partner of choice for MNCs. Can make lozenges of all shapes and various flavours.

  3. Last 5 yrs Operating revenue and EBITDA -

Revenues - 1200cr, 1255cr, 1501cr, 1641cr, 1892cr

EBITDA - 222cr, 203cr, 288cr, 368cr, 556cr

EBITDA margins (%) - 19, 16, 19, 22, 29 percent … Last 02 Qtrs margins have been at 25 pc

ROCE (%) - 17, 14, 22, 28, 42 percent

Cash holdings on 31 Mar 21 - aprox 700 cr. As on 30 Sep, Cash holdings are north of 800 cr

  1. India business - Share of chronic therapies in India has expanded from 31 to 36 pc in last 5 yrs. Same is expected to go even further. Same is expected to continue due better diagnosis and compliance on the part of patients. Poor lifestyles, obesity and poor eating habits are also contributing to this trend. Key enablers for the company remain- awareness programs and penetration in Tier II and III mkts. During the year, domestic formulations sales stood at 840 cr. Company is currently employing a sales force of > 2100 MRs. Contrast media product sales of the company stood at 53 cr, down 14 pc due deferral in electives.

  2. International business - Operates different models in different countries with direct presence in SA and Russia. Has distributor relationships in US and various other countries across LATAM, Africa and Asia. Company also has good CMO operations. Overall formulations exports stood at 1007 cr, up 19 pc yoy.
    SA sales at 218 cr, API sales 83 cr, Russia sales at 61 cr, Ukraine and CIS countries sales at 68 cr.

Disc : invested, biased.

1 Like
633

Notes from AR 2021-22 iro Crompton Greaves Consumer Electricals -

  1. Offer products in both mass and premium segments. Covid has been a tail wind for smart electrical products as consumers have been staying at home. Company investing heavily in R&D to respond to new market trends and develop smart products that meet customer expectations.

Company’s manufacturing locations are located at - Goa, Vadodra, Ahmednagar and Baddi.

  1. Despite drop in Covid induced drop in demand in Q1,Q2 and RM inflation in Q4, company reported resilient financial performance for the full FY. Total sales at 4825 cr vs 4570 cr. PAT at 604 vs 494 cr !!! ( this in a covid disrupted year is commendable ). All this was driven by strong performance in Elect Consumer durable division which includes - fans, pumps and appliances. Most of the growth was driven by product premiumisation. In lighting, B2C did better than B2B. Ongoing cost saving measures helped us save 153 cr in operating costs !!!

  2. Company has a 5 dimensional plan to shape the future of the company-

(a) Brand excellence
(b) Portfolio excellence - by investing heavily in R&D and technology. Same is getting reflected in increased off take of premium products.
(c) Go to Market excellence - using tech, building alternate channels like modern retail, e commerce and strengthening rural distribution.
(d) Operational excellence - by continuing to invest in growth initiatives and digital enablement.
(e) Organisational excellence - continuous up skilling of employees.

  1. New innovations this year included bacteria killing LED bulbs, anti dust and silent fans. Both were instant hits in the marketplace. Company maintained its leadership in Fans category, led by premium fans and increased availability. In pumps category, launched mini residential pumps, solar pumps, new variants of submersible pumps. Launched water heaters, JMGs with 5 star ratings. Energy efficiency has been our key USP.

  2. Launched dealer portals through which dealers can directly engage with the company and can also monitor stocks and orders. This facility is being used by over 400 channel partners now. Soon, this will be available as a mobile app as well. New initiative- ’ Son of the soil’ launched to target population centres with 10k-100k populations. This initiative has taken off really well.

  3. Last 5 yr operating performance -

Sales - 4017, 4105,4497,4512,4750 cr
EBITDA - 502,562,634,656,780 cr
EBITDA margins - 12.5, 13.7,14.1,14.5,16.5
PAT - 283,324,403,495,605 cr

  1. Demand for fans is likely to be secular as India expands electrification in rural areas. Needless to say, rapid urbanisation should be here to stay. Company also intends to export to SAARC countries along with channel expansion and rural programs.

  2. Similarly, thrust on water and irrigation infrastructure will stimulate further growth in electric pumps segment. Pumps are also extensively used in water treatment plants which in turn has secular tail winds. Jal Jeevan mission is another tail wind for pumps market.

  3. Appliance industry should also see acceleration due urbanisation, nuclear families, surging rural consumption.

  4. Govt has announced an incentive of 4-6 pc for a period of 5 yrs to companies engaged in manufacturing of LED lights subject to min threshold investments. This will further boost domestic manufacturing , create economies of scale, enhance exports and create a robust component eco system.

  5. Future plans - Consumer Appliances should be an area of robust future growth. Intends to expand the core ( heater and coolers ) into smaller appliances. Home appliance business has doubled in last 3 yrs and company intends to develop full range of kitchen appliances.

Disc : invested, biased

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634

Notes from Q2 concall iro TCNS clothing -

  1. Q2 saw sustained recovery vs Q1 despite severely impacted July. Q2 revenues up 2.5X of Q1 revenues. Q2 Offline sales at 75 pc of pre Covid sales. Online business continues to see significant growth on an already substantial base. **As on date ( ie 12 Nov 21 ) revenues are tracking near pre covid levels ** Gunning for business to hit pre Covid levels and go beyond in H2 FY 22. ( Pre covid FY 18-19 Sales and PAT were - 591 cr and 70 cr )
  2. Key focus areas for Q2 -

(a) Online business - continues to do well across own website and marketplaces. Omni channel stores fulfilment which was launched last Qtr scaling up well to cover most large demand centers and is now contributing to 5 pc of sales.

(b) Store expansion - Aim to add 60+ EBOs this year. Will open a store every third day in H2. This will take store count to above 600 + for the first time.

(c) Project Rise - Upgrading presence in key markets ( in up-mkt areas like CP showcasing the complete range of products ). Opened 5 large stores, clocking 1.5X pre COVID sales. Should help the brand to grow can consumer’s mind in a big way.

(d) Cash conversion and cost control - Q2 has been cash accretive. **Last 3 out of 4 Qtrs have been cash accretive taking total cash to 160 vs 110 cr YoY. Reduced rent commitments by 20 pc.**Continue to invest in ppl, infra and processes.

(e) Swifter thought to shelf - improved inventory management, consolidation of warehouse ops, express replenishment mechanisms and design incubation - fully on track.

  1. Have built a differentiated footwear range, finding good acceptance. Footwear already contributing in double digits in EBO stores. Complete roll out of footwear range in second half of current FY.
  2. Fusion Folk wear- being tested through 20 W stores. Seeing good traction here, will roll them out to 90 W stores now.
  3. Aim to open 15 exclusive ‘Eleven’ branded stores in second half. This can be scaled massively if the pilot project is successful.
  4. Over time, aim to make W a complete lifestyle brand. Piloting beauty products in EBOs and Online channels under the W brand. Getting good response here as well. Aim to make W a complete top to toe brand.
  5. Qtly sales at 239 cr, up 66 pc yoy. Gross margins at 63pc vs 52 pc last yr. EBITDA at 45 cr vs 7 cr loss last yr. PAT at 11 cr vs loss of 27 cr last yr. Opened 17 new stores and closed 9 stores during the Qtr taking the total count to 557 EBOs.
  6. Overall blended gross margins across clothes, footwear, cosmetics should settle around the current gross margins profile of the company. Sale of cosmetics and footwear in the Rise stores ( large format stores ) has been very encouraging.
  7. Currently 37 pc stores are franchisee led and rest are company owned. Company chooses franchisee partners very carefully. Most stores in Tier 1 and 2 cities are company owned. Franchisee stores are in Tier-3,4 cities.
  8. B2C in online is now at 50 pc. Rest 50 pc comes from other channel partners.

Disc : not invested. May take up a tracking position.

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635

Notes from AR FY 2021-22 iro Prataap Snacks -

  1. Leading Indian snacks food player offering multiple product variants like - potato chips, extruded snacks, namkeen and pellets under the Yellow Daimond brand name. Entered Gujarat market and further diversified portfolio through acquisition of Avadh snacks ( 4th largest player in Gujarat ). Prataap snacks holds 90 pc in Avadh snacks. Also launched sweet snacks under the brand name rich feast offering cookie cakes, Yum cakes, chocolate, vanilla cakes, tiffin cakes and sandwich cakes.

  2. Present across 27 states 4 UTs. Sell 1.1 cr packs a day. Company gas 14 manufacturing facilities - 06 owned, 08 contract mfg plants. Distributes via 4300 distributors and 240 super stockists.

  3. Last 5 yr financial highlights -

Sales - 894, 1017, 1171,1394, 1171 cr
EBITDA - 43, 87, 83,94,63 cr
EBITDA margins - 5pc, 9pc,7pc,7pc,5pc
PAT - 21, 44,45,47,14 cr

Last 02 Qtrs -

Sales - 280, 371 cr
EBITDA - 11, 24 cr
EBITDA margins - 4pc, 7pc
PAT - (-) 2 cr, 15 cr

  1. FY 21 performance impacted adversely by 2 things- the pandemic and RM inflation wherein the Palm oil prices went up by 30 pc. Company is focussing on deepening its rural reach to make up for any shortfalls in urban reach. Also setting up new facility in Kolkata to enhance their reach in eastern markets of India.

  2. Avadh is a value for money brand growing at over 25 pc CAGR in last 5 yrs. Even in FY 21, Avadh delivered double digit growth. Avadh’s facility in Rajkot was increased by 50 pc last yr. Avadh to expand to Maharashtra, MP and Rajasthan this yr. Also, Yellow Daimond compliments Avadh in a perfect manner.

  3. Reopening of schools, colleges will push the demand even further.

  4. Company now focussing on direct to distributors model, skipping the super stockists. This helps increase margins. More focus to be given to tier-2.3 towns.

  5. Company mindful of consumer preferences and tastes- specially the millennials. To keep innovating and introducing new products in the market.

  6. Covid has provided a leg up to the organised snacks players vs the unorganised ones.

Disc : invested, tracking position

636

Disc:

Added TCNL clothing @ 750, CCL products @ 425 and Solara Active @ 1050… all tracking positions.

Tracking position… ie < 1 pc of portfolio

Regards,
Ranvir Dehal

637

Bharat Electronics - Notes from AR 2020-21 -

  1. Last 5 yrs Sales, PAT,R&D and Dividend data -

Sales - 8825, 10085, 11789,12608, 13818 cr
R&D spends - 777, 988, 1077,947, 873 cr
PAT - 1548,1399,1927,1794,2065 cr
Dividend - 503,491,828,682,975 cr

  1. Sales in FY 20-21 were up 9 pc over previous FY. BEL achieved an export sales of $ 52 million ( aprox 390 cr ). Company has 09 manufacturing sites. PAT growth of 15 pc was achieved. Current order book stands at 53433 cr ( that’s like 4 yrs of current revenues ). Expected to receive good orders in next 2-3 yrs. Total R&D expenditure as a percentage of revenues was 6.3 pc.

  2. Sale of Indegenously developed products at 79 pc of total sales vs 21 pc products manufactured through ToT with foreign OEMs. Sales from defence equipment at 82 pc vs 18 pc from non defence equipment.

  3. Orders received during the year include - AFNET performance and security enhancement, SATCOM network, Naval fire control systems, Software defined radios, Advanced torpedo defence systems, DMRRs. Total value of orders received was 15278 cr. Total patents granted during the year were 3. With this, company now has 13 patents.

  4. Company strives to diversify into various other fields in order to de-risk. At the same time, Atma
    Nirbhar Bharat offers immense opportunities for the company.

  5. Segments like - radar and missile systems, comm and network centric systems, anti submarine warfare and sonar systems, tank electronics, gun upgrades, electro optic systems, EW and avionics will continue to drive company’s growth in coming years. Non defence areas of growth include- homeland security, EVMs and smart cities. Company strives to achieve leadership position in strategic electronics by continuing to invest in R&D. Company is also working on developing efficient Li-Ion batteries.

  6. In non-defence sector, company is working on ATC radars, smart meters, anti drone systems, range of medical and healthcare solutions, network and cyber security, space grade solar cells, satellite electronics etc.

  7. Execution pipeline for 2021-22 includes - LRSAMs, IACCS, CSS ( Costal surveillance system ) phase-2,Kerala finer optic network,Weapon locating radar,Integrated perimeter locating system EVMs, HUMSA UG ( a sonar system ) systems etc. Export order book for FY 22 stands at $ 125 million.

Disc : Not invested.

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638

Notes from AR- 2021-22 iro Jubilant Pharmova -

  1. Revenues from Pharma business at 5789 cr vs 5714 cr. CRO revenues at 305 cr vs 251 cr. EBITDA at 1414 cr vs 1585 cr. EBITDA margins at 23 pc vs 27 pc YoY. Depreciation and amortisation at 349 cr vs 339 cr. Finance cost stood at 184 vs 199 cr YoY. PAT at 573 cr vs 677 cr YoY with an EPS of Rs 36.

  2. Pharma segment - Manufactures and supplies radio pharmaceuticals with a network of 48 radio pharmacies in US, Allergy immunotherapy, Contract manufacturing of sterile injectables and non sterile products, APIs and solid dose formulations through 6 manufacturing facilities that cater to North America, Europe and other geographies.

Sub segment ( within Pharma segment ) wise performance -

(a) Speciality Pharma - includes radio Pharma and immunotherapies - Sales at 2303 cr vs 3019 cr YoY…primarily due lower number of lung scans due COVID and competition.

(aa) Radio Pharma - Manufacture, supply and distribution of radiopharma products for diagnosis and treatment of various disease.Company specialises in Lung, cardiac, Bone and Thyroid imaging products as well as thyroid disease therapy. Has second largest radio pharmacy chain in US with total pharmacies at 48 distributing nuclear medicine products to national Group Purchasing Organisations ( GPOs). Serves 4 million patients per yr. Radio pharmacies complement radio Pharma manufacturing business and provides it direct access to hospital networks. Company further enhancing marketing and business development efforts for Ruby-Fill ( used for PET imaging ) installations as Covid situation improves. Also launched Ruby Fill in Europe.

Company has entered into a strategic alliance with SOFIE biosciences with 25 pc equity holding enabling SOFIE to grow its Theranostic ( combo of diagnosis and therapy using two radio Pharma materials. First one used to diagnose, second one used to treat ) pipeline and support novel PET diagnostic manufacturing and distribution within US. SOFIE is a leader in fast growing molecular Theranostic field. SOFIE has 14 radio pharmacies for PET scans. It also has CMO facility to make Theranostic molecules. SOFIE also owns 70 pc exclusive rights of a proprietary FAPI ( Fibroblast activation protein inhibitor ) used to treat and diagnose a variety of oncology disease. SOFIE and Jubilant together intend to be a Theranostic powerhouse.

In FY 20-21, Radio pharma division reported sales of 1915 cr vs 2607 cr last yr.

(ab) Allergy immunotherapy - Sells in US and exports to several intl mkts including Canada, Europe and Australia. It is a differentiated business of manufacturing and marketing Allergenic extracts. Sole producer and supplier of Venom immunotherapy in US. This business was also affected by COVID. Sales stood at 388 vs 411 cr YoY.

(b) CMO - 04 manufacturing locations in US. Offers CMO of sterile injectables, ampoules, sterile ointments, creams and liquids. Business witnessed good growth during the year with sales at 1394 cr vs 895 cr …helped by CMO of Covid vaccines. New area of growth identified by the company - sterile ophthalmic products.Setting up a new line for the same in Canada. Investing aprox 650 cr in Washington to expand sterile manufacturing capabilities.

(c) APIs - Makes APIs in CVS, CNS, Anti Infectives and Anti Depressants categories. Sales stood at 615 vs 640 cr. Several cost and process efficiency programs are being undertaken for various APIs as a part of life cycle management.

(d) Generics - Only present in solid dose formulations. Mostly focussed on regulated markets led by US. Business drives benefits from in house APIs. Makes formulations at Roorkee and Salisbury in US. Roorkee facility received import alert in Jul 21. USFDA has exempted Olanzapine, Resperidone, Meclizine, Valsartan and Spironolactone from import alert thus affecting only 3 pc of total company revenues. Total revenues from this segment was 1476 cr vs 1159 cr. Company sees significant growth opportunities in RoW mkts. Europe continues to remain a strong mkt for the company.

  1. CRO business - Provides contract research and development business under Jubilant Biosys ltd. Sales stood at 305 cr vs 251 cr YoY.

  2. Proprietary Novel Drugs - working in Onco and immunology fields. 04 of company assets / molecules are in advanced pre clinical stages and would transition to clinic early next yr. Company intends to create shareholder value in this business via private/public equity raise/ partnerships in the next 18-24 months.

Disc : invested from higher levels.

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639

INDIA PESTICIDES ( Estd - 1984 )

A mid sized agrochemicals company mainly focussed on making AIs ( active ingredients or technicals …akin to APIs in Pharma ). Company makes AIs of fungicides and herbicides. Company also makes a few APIs.
AIs made by the company include -

Fungicides -

Cymoxanil Technical ( to control fungal growth in grapes, potato and other vegetable crops )
Captan Technical
Ziram Technical
Folpet Technical ( used to control fungal growth at vineyards, cereals and as a biocide in paints )

Herbicides -

Prosulfocarb
Thiocarbamete family of Technicals ( used on paddy and wheat crops )

APIs made by the company include -

Anti Scabies drugs
Anti Fungal Drugs

Contribution of AIs to the total sales at - 506 cr out of 648 cr

In addition, company makes and markets a variety of agrochemical formulations ( which also include a few insecticides , growth regulators and acaricides). Some of these formulations have the benefit of backward integration as the company would be making their AIs in house ( as brought out above )

Contribution of Formulations to total sales at 135 cr out of a total of 648 cr

Company is the sole maker of 5 AIs in India and is one of the largest maker of Captan, Folpet and Thiocarbamate globally in terms of volumes.

Manufacturing facilities -

Two facilities- Both in UP

Current financials- Year ending Mar 21-

Sales - 648 cr . Last 5 yr CAGR of 23 pc
EBITDA - 189 cr. Last 5 yr CAGR of 29 pc
PAT - 134 cr. Last 5 yr CAGR of 57 pc

Mainly a B2B company. Has long term relationships with various multinationals. Key clients include - Syngenta, UPL,Conquest Crop Protection, Sharda Cropchem and Stotras.

57 pc of the total revenues currently driven from top 10 customers.

Current capacity - 19500 MT for AIs, 6,500 MT for Formulations

“Emergence of India as favourable manufacturing hub on account of trade Tensions with China has spurred the demand for indigenous offerings in agrochemicals” - Said Mr Agarwal ( Chairman ) in the AGM

Company’s plants have effluent treatment plants, warehouses and other essential arrangements for reducing effluents and hazardous waste generation.

AIso worth $4-4.5 billion are expected to go off patent by 2026. Company is focusing on this space along with their constant endeavour to expand their geographical footprint and customer base.

Key focus areas of the company -

Improvement in production processes
Improvement in quality and purity of current products
Undertake pilot studies to make new AIs to finally make them for their customers

The company reported an EBITDA of 183 cr and NP of Rs 135 cr for the Last FY. The EBITDA margins were at 28 pc LY. For the last 02 qtrs ( when most companies are struggling with input cost pressures ), they have reported EBITDA margins of 32 and 31 pc respectively. Combined NP for last 02 qtrs has been Rs 84 cr.

Company’s present mkt cap of Rs 3800 cr doesn’t look expensive. Plus the kind of margins that they are reporting definitely warrant further inquiry.

Another thing that’s quite interesting is that their margins are way better than even PI Industries !!!

Surely, they must be doing something that probably others are not. The only thing that comes to mind is - greater degree of backward integration ( something like Divis for their generic molecules )…but that’s only a guess.

Key risks - fall in margins going forward. Clearly, the current margins are really rich. We need to dig deeper as to how is the company able to generate such good margins and how sustainable are they.

Key triggers - Mkt recognition of their Industry leading EBITDA margins.

Consider this - their EBITDA margins for last 5 FY have been - 27 pc, 22pc, 19pc, 20 pc, 28 pc

The same for peers are as follows -

PI Industries -

24 pc, 22 pc, 20 pc, 21 pc, 22 pc

Rallis India -

16 pc, 15 pc, 12 pc, 12 pc, 13 pc

Insecticides India -

11 pc, 14 pc, 16 pc, 11 pc, 11 pc

I really think we need to get to the bottom of this secret sauce that’s giving them Industry leading margins. Surely, this will come up as the company conducts its next concall.

Excerpts from management commentary provided on CNBC on 21 Dec 21 -

(a) Capex of 70 cr likely to be commissioned for this FY
(b) Capex of another 70 cr likely to be commissioned in the next FY
(c) Expecting an asset turns of 2-2.5 on the same with similar margin profile as the company is presently enjoying
(d) Capex of 350 cr lined up for FY 24 …again with similar margins and asset turns of 2-2.5
(e) Company likely to clock revenues North of 700 cr this FY
(f) Revenues likely to hit 1000 cr in next 02 years
(g) Revenues likely to cross 2000 cr inside 04 yrs from now after all this new cumulative capex of 500 cr goes online

Attaching the video for reference…

Dheeraj Kumar Jain Of India Pesticides Speaks On The Firm’s Business Outlook | Midcap Radar - YouTube

Well…to me, this looks like a rare high growth, low risk, moderately priced bet in an otherwise richly valued markets. Could not find too many negatives about the company except for the fact that I am yet to fully comprehend the reason behind their Industry leading margins except for process efficiencies, careful product selection, tight cost controls etc

On Corporate Governance - nothing adverse that I could come across. But yes… it is always a work in progress.

Disc : invested, biased.

Regards
Ranvir Dehal

3 Likes
640

Disc : exited Hikal at Rs 455 last week.

Was really uncomfortable with the news of MD absconding post the unfortunate accident that led to the demise of 06 people.

Converted to -

ICICI Securities
Angel One
India Pesticides
Nilkamal Ltd

641

From its concall, Indian Pesticides does not enthuse confidence at all. There are no clear or convincing answers to the very few questions asked in the Q2 FY22 concall. I had similar feelings when I listened to the pre-IPO call a few months back. I would suggest to better avoid.

642

Hi…

Thanks for the input. Is your observation based on their not so good / accurate responses in the concall or have you come across something else as well ie wrt the business / management’s ethics etc. It will be great if you can share the same.

To me, the business looks more than descent with clear capex pipeline, good potential for growth, rich margins, leadership position in more than a few molecules , sectoral tailwinds etc.

Thanks in advance.

643

See this for one: Blogger Red Flags Shocking Details about India Pesticides Ltd IPO

1 Like
644

Thanks for sharing the twitter thread.

That was helpful. Will definitely re-look at my investment.

In fact, after going through the thread, the only logical step looks like making an exit :grimacing: :grimacing: :grimacing:

1 Like
645

1.whats yours views on hcg ?
2.hcg vs aster dm ? which one would you choose and why?
3. views on laurus labs?
… loved your thread ranvir :grinning:

646

Hi…Bhavya. Thanks for the kind words.

On HCG vs Aster, I would prefer Aster.

Sole reason - Have a look at their Qtly EBITDA vs Qtly Interest payments. Aster fares much better here. And since both are kind of turn around stories, I am trying to err on the Safer side ( as perceived by me).

On Laurus labs - I have very high regards for Mr Chava and his vision and execution capabilities. Plus the CDMO business looks great. But the fact that bulk of their business comes from ARV APIs + ARV Formulations, it does cause a lot of uncertainty in my mind as this business can potentially be badly disrupted by the Injectable - Cabotegravir. So… I would, at best keep a tracking position here.

These views are personal and I may be completely wrong. So…take it with a pinch of salt.

Regards,
Ranvir Dehal

647

Thanks for your response ranvir :grinning_face_with_smiling_eyes:

648

Descent results from UPL

Disc : holding. Biased