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.
WHO in 2014 declared Anti Microbial Resistance as a worldwide threat. India’s seen a rise of startups in the drug discovery space in AMR(http://articles.economictimes.indiatimes.com/2015-01-18/news/58200765_1_drug-discovery-indian-angel-network-antibiotic-resistance). Venus is a relatively less known company which has made progress on this front and is receiving patents for drugs they have developed.
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.
Regards,
Saqib