Venus Remedies is a 25 year old Indian Pharma Company, among the top 10 fixed dosage injectable manufacturers in the world whose topline has been growing steady at ~15% but EPS has been constant.
What I like about Venus Remedies is they have consistently grown sales at ~15% while sustaining their Gross Margin. They however seem to be over investing on capital(low Capacity Utilization), overspending on their marketing office (~60 crores while its not their core strength) and being unable to clear debts. Their R&D expense, Interest and Depreciation are shooting up YoY. While the Chairman has been talking about getting major drug approvals, increasing CU through out licensing & tie ups with MNC pharma companies, he seems to be really happy about their research, >15% topline & EBITDA growth. Excuses based on long pipelines of drugs in research is the reason they’ve been giving over the past years for failing to repay debt in time.
What I hate about the company is they have been diluting equity YoY through issue of preferential shares to promoters etc. The promoters also hold board positions in Suneev Pharma(owns 22% stake in Venus Remedies) & a software company(shares the newly constructed marketing office). The promoter stake in Venus Remedies is low and declining(~34% currently)
Venus has been trading at 4 times PE and 5.5 times EV/EBIT for the past few years. Will its spending on R&D over the past years, tie ups with pharma majors yield blockbuster profits (or) is it just a value trap in the making? Please help with perspective.
Another positive that I missed: Venus has seen good operating cash flows over the years (2014 was an exception when they were constant). And there’s a good correlation between cash flow from operating activities and net profit.
Venus Remedies has gotproduct patent grant fromIndian Patent Office(IPO) for its unique research product, Vancoplus. It is valid till 2025.
“The total market size of MRSA in the world accounts for $ 9 billion. At present, it is growing with CAGR of 4.8% which is estimated to reach to 12.4% by 2017. In India,Vancopluswould have an addressable market of Rs 214 crore by 2018-19,” Venus Remedies said in a statement.
R&D cost is capitalised, not expensed. That inflates the PAT figure and also inflates the gross block figure. If R&D costs are expensed, then they would show flat to negative profits in past few years.
While they keep patenting their drugs, they have been unable in the past 4-5 years to outlicense most of these promising drugs.
None of their plants are USFDA compliant. They chose the combination drug route instead of selling generic versions of off-patent drug route. And so far they have not much to show for their strategy.
@ Anil: Thanks for your inputs. So Venus Remedies can turnaround only if they manage a step change and outlicense their patented drugs which they have been promising for so many years.
I am puzzled about the disclosures of the company. Venus has 30% decline in Revenue in Dec’14 and no explanation is provided by the management so far. There’s this newshttp://www.tribuneindia.com/news/himachal/seven-pharma-firms-told-to-stop-manufacturing/14612.html of their Baddi plant facing a shutdown due to GMP violations but the company did not themselves disclosure this info to public.
How can you be sure that they are capitalizing R&D costs which must be expensed? Page 47 of their 2014 annual report says they’ve capitalized 47.2 crores and expensed 16.57 crores. But their notes on financial statements explain that they only capitalize a) development activities applied to production of new products and processes b) expenses related to patents & trademarks which are written off in 10 subsequent years. All expenditure till the research phase and development activity which does not result in a marketable product is still expensed.
I’m not hundred percent sure, but you can simply see how much the gross block has increased year after year, and check whether it is plant and machinery or it is intangible assets. You will get your answer.
Having said that, if you have some positives to add, I’m willing to be persuaded.
Not tracking this stock actively but heard from my channels that they have working capital issues going on. It will be good if somebody could look into the health of its working capital cycle and post some analysis on this front.
Disc: Not invested (pharma doesn’t fall under my circle of competence )
The PE was 4.something at the time of writing the post. The Net Profits started Declining from Dec 2014. I believe Screener’s PE calculation is correct.
Venus has strong Operating Cash flows - while the new profits fell in FY March 2016, their Cash Flows from Operations shows a steady increase. The promoters have increased their holding via issuing preferential shares. I suppose their working capital situation is grim but not bad enough to affect the normal functioning of the company.
But their reputation to splurge capital ie. over investing in R&D(I wonder if their expenses are legitimate), buying land, setting up a marketing office when the business isn’t doing well is worrying
Cipla has paid 145cr towards intangible assert in FY2019-20, which includes 35cr towards acquiring ZEMDRI as per global legal chronical news…So Cipla might have paid ~100+ cr for ELORES to Venus Remedies which indeed significant news, any View Please
Disclosure 1st: I don’t hold any shares of Venus Remedies, am exploring this company, may start buying in the next couple of weeks
Reasons for exploring
1.Looks like they have strong R&D
2.They are not targeting generic drugs, instead they are focusing on combination drugs
3. Not being in generics, they are not in rat race for US FDA approvals, further depletion in prices could be less
4. June quarter was stellar in terms of their numbers, could be because of pent up demand ,September quarter is good too
5. Management pledged 100% of their holding for the last 4 years, speaks about their commitment for the organization
6. Borrowings have come down
7. They received EU GMP approval for their Oncology facility
Biggest concern areas
1.They are too focused on Oncology therapeutics
2. Absolute boycott of US
3. ~10% OPM for R&D focused company is too low
Appreciate any further inputs
Pharma firm Venus Remedies said it has joined AMR Industry Alliance – a league of over 100 globally renowned organizations – to develop solutions to combat the grave public health threat posed by antimicrobial resistance.
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