Vikram Thermo

To understand this company better, one needs to understand Excipients.An excipient is a pharmacologically inactive substance used as a carrier for the active ingredients of a medication. The need for an excipient arises because some active ingredients may not be easily administered and absorbed by the human body - that’s where an excipient comes into play - the ingredient maybe mixed/dissolved with an excipient. Excipients are also used to allow for convenient and accurate dosage/release and to keep the flavour/taste. They stabilize the active ingredient and ensure that the ingredient stays active and stable for sufficiently long time. Excipients are of many types, including coatings, binders, fillers, lubricants, preservatives, etc. Based on the form of medication and route of administration different excipients may be used - for example, tablets and capsules are used for oral adminstration. However, they are used when absolutely necessary and in the smallest amounts possible - it should come as no surprise that the formulation of excipients is usually considered a trade secret.

Vikram Thermo wants to become one of the world’s largest pharma excipient manufacturers. They are a manufacturer, marketer and exporter of various pharmaceutical excipients, and provide solutions in Film Coating / Enteric coating and Sustain Release / Control Release formulations to pharma industry. The company has two product categories:

1). Diphenyl Oxide (DPO): The company started its business in 1984 at Chhatral, near Ahmedabad with the launch of DPO. Over the past few years, it has increased its capacity to about 840 tons p.a. DPO has following applications: in heat transfer fluid; reaction solvent in the manufacturing of API and as perfumery compound in cosmetics.

2). Drugcoat (Methacrylic acid copolymer): In addition to DPO, the company also started the production of its Drugcoat line of products that is basically a polymer used in tablet coating for enteric/film coating. It is also used for sustained release, transpareng coating, moisture barrier coating, etc. Variants of Drugcoat are used based on the requirements - solid dosage, liquid dosage, high pH, low pH, all pH, etc.In Drugcoat, the company has a capacity of 1200 tons (liquid) and 120 tons (solid) p.a.

Production: While in the early years of the business, most of the company’s products were imported. But today, with its own R&D, the company produces nearly 94% of the products indigeniusly. The rest 6% is imported. The quanity sold in FY11 and FY10 by product categories:

Drugcoat: FY11: 1535 tons, FY10: 1147 tons

DPO: FY11: 903 tons, FY10: 788 tons

The numbers suggest that the calacity utilization has been above 100%.

The industry size is unknown to me, so not clear what % of the market they command, but given the products, i.e. pharma coatings, etc. it could be a multibillion dollar industry.Names of their clients/percent of sales by clients are not available.

The key raw materials (petrochemicals) for the company are caustic soda, methacrylic acid, ethyl acrylate, phenol and mono chloro benzene.

Summmary financials: Currently trading at ~40/share (mcap of 22crores), with net profit in FY12 of 5.5crores (eps of 9.92; implied ttm pe of 4). Debt free with RoE ~ 37% (increasing in the past 5 years), consistent dividend payer, with last yr div of 1.5/share (implied yield of 3.75% at cmp and payout of 15% using FY12 eps). Sales and PAT up by over 2.5 times and 3.6 times in the past 5 years. Price to Sales of about 0.6 times. Price to Book of about 1.2 times. Promoters have been increasing their stake (up to 56.44% in Mar12 from 53.32% in Mar11).

Risks/potential areas of concern: Fluctuation in petrochems is a risk to the company. Being a microcap, bears the risks of low traded volumes (although the volumes have gone up post FY12 results). Other risks could arise from unknowable events related to products being banned, industry headwinds, regulatory risks, labor risks, etc. Its clients, their growth rates etc. are not known, so there is a potential risk (unknown as of now) associated with loss of business.

Conclusion:Over the past 28 years, Patels have created an interesting business and are aiming to make Drugcoat one of the largest brands in Excipients. The nature of the business is competitive and it doesn’t seem like one can win a client just like that - as such, the business has high competitive barriers, and the company has competitive advantage that comes from the decades of business, experience of the promoters and local R&D. However, as of today, I dont know who their top customers are and how much ghey contribute to the business. The company has done well in terms of sales/profit growth, RoE/RoCE and being debt free is another plus. The company was available at around 32/share before the results were announced ( and at a steep discount to earnings as suggested by the price vs ltm earnings chart for the past few quarters), but ran upto 43.8/share in 4-5 sessions with increase in volumes (and delivery %). Dividends have been consistent, and the yield is decent. Promoters increasing their stake is a positive sign.While all of this has been rewarded partially by the market, 4x p/e seems cheap for such a business. With improving business and financial performance, the stock is likely to continue the journey upwards.

Thoughts/suggestions welcome.

Discl: Invested.


good find. looks like an excellent company. although with the current market situation, the appetite for small cap (and at 22 cr market cap this is micro cap) is limited but for the patient investor once some fancy builds up this could really fly.

I found the numbers very encouraging and the growth without stretching balance sheet also looks good.

If they can hike dividend in fy 12 to rs 2 or above this could be a very good div yield play also which will limit downsides during market corrections.


Thanks Hitesh. Agreed - Returns could be very rewarding provided the company continues to deliver.

To better understand the potential upside and loss of capital, if any, I am trying to find if the company has a strong competitive advantage (although strong financial performance, without, is difficult), the scale of opportunity, their clients and specifically their marketing efforts. Would you happen to know any such specifics? If not, could you please check with your network and share the insights with us?




Hi Rohit,

This co has been on my radar for sometime and I have been increasing my exposure post the Q4 nos. Yes, the product profile is very interesting and they seem to be very good and strong players in this segment. I’m also trying to dig out more but limited info is available.

On the negative, as the capacity expansion has been slow over the last few years, its important to understand the scalability here.


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Thanks Ayush for your inputs. Regarding capacity expansion, in DPO, they have increased the capacity from 600T to 840T in FY11. However, looking at FY11 production/sales figures for DPO, they did well over 100% capacity utilization. Similarly, for Drugcoat, capacity utlization was over 100% in FY11 (a minor issue/opportunity: powder capacity remains underutilized, where ~39T was produced in FY11 on a capacity of 120T, although much better than ~20T in FY10 and FY09). If they continue to grow, maybe they can manage some of the growth with extra shifts (don’t know if they are doing it already) and gradually increase the capacity without stressing the balance sheet. However, I am sure we as investors want to know the size of the potential market and, if and when the company can/wants to scale up to meet the demand, among other things. Lets see if we can find something.

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I think the key question to ask is how big is the demand and how big or how good are the competitors.

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Thanks Rohit, for a very promising prospect:).Interestingly, over the weekend I heard from 2 pros interested in Vikram Thermo. One is a doctor and another a market veteran.

This should get focused attention. Anyone has any idea of the size of the market? Looks to me excepients are not new to pharma industry - they must have been there for the last 30-40 years atleast as drug delivery systems evolved.

Who are the major competitors? There must be others from India, and much bigger players on a global scale.

Lets dig into this.

Vikram Thermo (India) Ltd
Key financials
( Crs.)
Year end Mar 11 Mar 10 Mar 09 Mar 08 Mar 07
Net sales 31.99 20.53 17.19 20.41 16.23
Operating profit 5.54 3.90 3.31 4.05 2.85
Net profit 3.02 2.00 1.45 2.06 1.46
Equity cap pd 5.58 5.58 5.58 5.58 5.58

Rohit/Anyone else who's studying this company

Can you throw some light on the stagnation between FY 2008-2010?

Some key findings from a distributor of Vikram Thermo.

1). Some 2-3 players in the world BASF, Evonik, Vikram Thermo

2). Vikram Thermo has over 50% share of Indian drug coating market and also exports to US and UK.

3). cGMP Approval is enough. US FDA not required

4). Company is able to sell at 40% lower than the Imported products

5). Technology is available, but getting the product consistency/approval from Pharma companies is very tedious. They are reluctant to change suppliers…approval process from some pharma companies takes as much as 2 years

6). Chairman …is a PHD in Polymer technology…teacher of MD…and he is the brain/mastermind behind the technology implementation

7). Vikram Thermo has over 95% of the Hyderabad market for drug pellets (the small granules in capsules) (they have come into Tablet coatings later). Hyderabad weather is best for coating pellets…and must drug companies outsource/buy pellets from Hyderabad


While there are some 10-11 companies as per this list of Excipient contractors, only a few may like Evonik may be direct competition, because of the limited product range of Vikram Thermo.


Pleased to see the quick turnaround here. Gathered more details over the weekend:

  • We are dealing with a company that is planning to become one of the leading names in the global Excipients market. As per BCC research,global excipients market size: US$4.9b in 2011 and US$6.7b in 2016


**That is, one out of 10, 5, 12, 6, 20, and 6 companies mentioned under the heads of coatings, coating systems, controlled release, enteric, excipients and film coating.

Btw, don’t be surprised to see their url on the link as (see below)

*They seem to be doing business with (possibly a key distributor / subsidiary co) Samrudhi Pharmachem run by Amit Shah in Mumbai. Seems to be mainly dealing with exports. Lots of other links on the internet mention this co regarding excipients

  • Excipients are chosen very carefully after considering their impact on drug efficacy, economics, who’s the provider, etc. Vikram has done quite a lot of right things so far and certainly has established their name. The opportunity is clear: multibillion $ industry, that is highly competitive, but with enough potential for quality players to grow. We need to know if Patels are aiming for atleast 1% of ~$6.7b by 2016, i.e., 10x from here, and if they have the right people and tools in place. All of us know what we are sitting on if they indeed deliver this much or more.

While initial findings are good, we need to set some perspectives, here:

1). Getting a piece of the global action is very very tough - especially when there are few players. The market is dominated by the biggies and the whole distribution system is very difficult to crack, say in the US - unless you takeover/own an existing distributor

2). Even a company like Opto circuits - with 3% of the organised market for Sensors in 2008, has not managed to go beyond 5% by 2012. Reason, 85% of the market is cornered by the bigwigs

All that Management Depth and Bandwidth in Opto, they are not able to reach the avowed 10% global market share in so many years.

It will be difficult to assess the company and its prospects well - unless we meet up with Management. Management is averse to meeting investors - as per feedback from some analyst friends. The distributor also mentioned Management is publicity shy - they fear takeover threats - reportedly Evonik had tried to approach/have a go!

Anyone can open up contact with Management? It will be worth all the effort - the data points to it:). Please get cracking!

[quote="Donald, post:8, topic:845709034"] > Vikram Thermo (India) Ltd > --- > 16.23 > Operating profit | 2.85 > Net profit | 1.46 > Equity cap pd | 5.58 > > Rohit/Anyone else who's studying this company > > Can you throw some light on the stagnation between FY 2008-2010? [/quote]

Need to look at the quantity sold for Drugcoat and DPO for the relevant years (dont have some of the previous ARs, so posting numbers as provided on moneycontrol)

For FY07-FY11, quantity sold (in tons, fronleft to right) for Drugcoat and DPO:

Drugcoat: 811, 1111, 1048, 1147, 1525

DPO: 481, 591, 418, 787, 902

(dont have the price data though)

Now, Drugcoat (quantity sold) for fy08 and fy10 is comparable, but was marginaly lower in FY09. DPO was lower in FY09 as well. That explains the sales dip in fy09 (assuming same/lower prices). However, DPO's quantity sold was 33% higher in fy10 vs fy08. But revenues look similar. So, what happened?

Look at the following price data (derived, Rs./Kg for fy09-fy11 using fy10, fy11 ar):

Drugcoat: 114, 103, 111

DPO: 126, 111, 165

Clearly they were able to increase the prices for drugcoat and dpo in FY11 compared to FY10. However, price in fy10 was lower than fy09 (and possibly, fy08. Somebody pls confirm from previous ARs). That should answer your Q. Follow up questions could be what made them reduce the prices in FY10? Why did they increase prices in FY11? I dont have an exact answer there, except that it seems to be a commodity and is priced so (abrupt movements maybe. Need to check this). Or maybe they just sold products at discount (to others) to win/retain clients. This kind of syncs with the info Donald shared regarding selling at discount (could be confirmed with the co if they incrased the number of customers, as the vol sold went up in fy11). But if its the former (dpo price moves like a commodity), then we might have to track dpo prices more carefully and regularly. (somethng like tracking prices of hydrogen peroxide for National Peroxide). I hope thats not the case though.

FY11 was a clear case of growth in both volume and value. Hopefully, thats the case for FY12 and years that follow as well. What I would like to know is whether they can continue to increase the price for same volume? What are their plans for capacity expansion?

Key financials
( Crs.)
Year end Mar 11 Mar 10 Mar 09 Mar 08 Mar 07
Net sales 31.99 20.53 17.19 20.41 5.54 3.90 3.31 4.05 3.02 2.00 1.45 2.06 5.58 5.58 5.58 5.58


2). it:)).

Dr. Patel (VT), meet Dr. Patel (VP) :slight_smile: What say Hitesh?


Will work on getting a contact this week and update.

Assuming the growth story is real and large enough,the management should consider taking this company private.

Average PBDT of 5.25cr for the past 3 FY, with 0 LT debt. That should give them sufficient capacity to pay an interest of 1.75cr p.a. (pbdt for fy08 and fy09 higher than this amount as well). That is, they can raise a long term loan of 14.6cr (possibly more, but lets consider this case for now).

Whats the free float today? 9.97cr. The company raises the debt and makes an open offer of 60/share (approx 46% upside). For a microcap in these times, that might sound like a very good offer to existing investors. What happens next? Out of the existing cash (2.39cr as of mar-12), the company pays 1.6cr and reduces the amount it owes to 13cr plus interest. The company pays the remaining amount in 4-7 years using cash and growth in revenues. Along the way, it doesn’t have to pay dividends to anybody. Will save a few crores. No need to publish the results to the public, no fees to be paid to the BSE, no need to pay for organizing AGMs, printing and mailing annual reports, etc.

So why is the company not doing this today?

*Why pay a premium for something when you can buy it at cheap prices? (and know it might stay cheap, unless, it doesnt stay cheap anymore)

  • Look at their end of FY shareholding from FY04-12: 39.36%, 60.94%, 55.8%, 57.2%, 54.21%, 54.75%, 53.28%, 53.38%, 56.44%. (seems like they decided in 2004-05 to acquire majority stake in the company, possibly to avoid hostile takeover. Also note the price swings from sep-04 to dec-07. Someone did pay a premium when they wanted to, and needed to. The prices fell with reduction in promoter shareholding (and possibly because of macro environment and results)). They have increased/decreased their stake in the past. But never took it beyond % they had in fy05. Why? Further, after 6 years, they changed their shareholding to the tune of 306bps. Why? We don’t know the answers to those questions. But the promoters definitely know something that we dont.

  • Maybe they’re just not interested in owning 100% of the business and taking the company private. Specially when they have to pay crores in interest! They might just continue to buy directly from the market as long as it stays at the valuations they are comfy with. Further, for some people its a matter of pride, “we are one of the largest publicly listed companies in excipients”

One shouldn’t be surprised if an open offer actually comes from a strategic, or financial investor to acquire all the free float in the company. 3% of $100M in AUM isn’t much to bet for a possibility of significant upside.

Either ways (open offer, no open offer) there is much value to be unlocked. Lets see :slight_smile:


Some data on the main products over last 5 years.

Vikram Thermo FY2011 FY2010 FY2009 FY2008 FY2007 5yr CAGR
DPO Sales (Cr) 14.88 8.73 5.25 7.43 5.81 26.48%
DPO Qty (kg) 903265 787980 418405 591290 481695 17.02%
DPO Realisation (Rs/kg) 164.70 110.79 125.56 125.67 120.68
DPO Seg Contribution 45.79% 41.41% 29.41% 35.33% 34.49%
Drug Coating Sales (Cr) 17.08 11.78 11.91 12.97 10.40 13.21%
Drug Coating Qty (Kg) 1535105 1147401 1048804 1111351 811269 17.29%
Drug Coating Realisation (Rs/Kg) 111.27 102.64 113.60 116.66 128.19
Drug Coating Seg Contribution 53.45% 57.43% 69.40% 63.57% 64.14%

These numbers are a dampner for me, given the size of the company ~40 Cr Annual Sales

1. Drug Coating Sales CAGR is disappointing. Points to lower price realisations

2. DPO Sales CAGR looks nice only because of the huge jump in FY11 fro DPO. We can try to find the reasons why

3. Both figures do not point to any sort of niche domination. My guess is there are Chinese players also supplying both segment products

If over 25 years, the company has not been able to scale up significantly what makes us think that the company will suddenly be able to grow and manage the environment any better??

Its too small a company to draw any sort of conclusions! Before the run up ~32 or so there might have been some price arbitrage. Stock has run up to 44 CMP, and at tehse levels good things are priced in.

This is a pass, at the moment!

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Another unpleasant news which needs to be tracked…

[quote="Donald, post:16, topic:845709034"] > Some data on the main products over last 5 years. > > DPO Sales (Cr) | 26.48% > DPO Qty (kg) | 17.02% > DPO Realisation (Rs/kg) | > DPO Seg Contribution | > Drug Coating Sales (Cr) | 13.21% > Drug Coating Qty (Kg) | 17.29% > Drug Coating Realisation (Rs/Kg) | > Drug Coating Seg Contribution | > > These numbers are a dampner for me, given the size of the company ~40 Cr Annual Sales > > Drug Coating Sales CAGR is disappointing. Points to lower price realisations > > DPO Sales CAGR looks nice only because of the huge jump in FY11 fro DPO. We can try to find the reasons why > > Both figures do not point to any sort of niche domination. My guess is there are Chinese players also supplying both segment products > > If over 25 years, the company has not been able to scale up significantly what makes us think that the company will suddenly be able to grow and manage the environment any better?? > > Its too small a company to draw any sort of conclusions! Before the run up ~32 or so there might have been some price arbitrage. Stock has run up to 44 CMP, and at tehse levels good things are priced in. > > **This is a pass, at the moment! [/quote]

Thanks for supplying further details. It will be too early to write this off, or ride this with full blow. Details of FY12 numbers and/or interview with the management will provide more clarity. More thoughts in line below:

Not completely - there are positives as well. Plus, we dont know the details of FY12 numbers yet.


However, volume has gone up 1.9x in 4yrs. Marginal improvent in realizations in FY11 is a positive. Maybe realizations came down becauseof discounts to win more clients, macro crunch or maybe it was industry wide phenomenun. Need to check that as well as FY12 numbers.


Capacity installed and increased to 840T in FY11 from 600T till FY10. Decent capacity utilization in fy10 and fy11. Seems like they knew the demand will grow, realizations could be higher and acted accordingly. Full marks there. FY12 seems to better looking at total revenues. However, for better clarity, I would like to know promoters' view as well.


Looks more like they won some more clients / increased orders in FY10-FY12 which is a good sign. For DPO, the company says they directly compete with Dowtherm A and for Drugcoat, they say they want to make it a leading brand in excipients, globally. I am quite okay with this kind of simple living and high thinking approach. And all those listings on directories, magazines, websites do sound interesting. At least they are trying hard in a market that seems to dominated by large players. One or two big orders here or there could do wonders.

Not suddenly, but gradually :) we need some gyaan from the promoters

one bit I completely agree with. Few days prior to the announcement of q4 results, I had drawn price vs ltm earnings for the past few quarters and found there was a big gap - if the company were to do ok in q4, it should trade up to 42-44 to catch up with earnings. Then it was trading at 32. Then the results were announced and the rest is history. The stock is up 37.5% from those levels, and if the earnings continue to grow at this/higher rate, prices will follow.This is

Like I said above, it will be too early to write this off, and maybe too early to ride for some :) most important bit is pursuit of truth and to allocate capital wisely.

Vikram Thermo FY2011 FY2010 FY2009 FY2008 FY2007 5yr CAGR
14.88 8.73 5.25 7.43 5.81 903265 787980 418405 591290 481695 164.70 110.79 125.56 125.67 120.68 45.79% 41.41% 29.41% 35.33% 34.49% 17.08 11.78 11.91 12.97 10.40 1535105 1147401 1048804 1111351 811269 111.27 102.64 113.60 116.66 128.19 53.45% 57.43% 69.40% 63.57% 64.14%

Sure… I am wanting to be corrected!

Just some cautions here:

1). DPO - there are many other suppliers - supplies are also to labs at medical colleges. one medical student informed they buy from many suppliers…so they buy the cheapest price…Vikrams supplies are good…as is HJ Aerochem are many more it seems

2). A listing in trade journals…is a basic necessity to get business

3). The defense to 40 Cr in 25 years …actually the growth started from 2001…~2 cr to 36 cr in 10 years is a good scale up…

4). A company with 40 Cr in revenues is too small to take any call on Management BW, ability to grow…ability to fund the growth…ability to make a mark on a global scale

5). Any global scale leadership ambitions …need to be taken with a pinch of salt…atleast 10 more years away…if they keep scaling…there are atleast 10-12 companies that are much much bigger probably 100 x to 1000x…someone can do a survey on that?

6). To expand product range (Excipients is a whole range…as can be seen from links above)…and to keep pace with new developments in existing products…they will need to keep investing in capital and skilled manpower…a big big challenge for a company of its size …that is not growing Sales fast enough.

7). The dominance of the biggies in medical supplies is a stranglehold…a company with 40 Cr in revenues just doesn’t have resources to invest in promotions/market development!

At the moment…much of the investment premise is built on “hope”, rather than on solid on the ground facts/figures.

I would love to be corrected with some more data!


Agree with most of the points below Donald :slight_smile: that probably justifies the 4-5x p/e company is trading at - and this one has to be strictly treated on show me the figures baby, and rewarded/punished accordingly. We need to draw price against LTM earnings by quarter for 40-80 past quarters to better understand how the company and the stock has been doing. And this one, looked way below the earnings chart at 32 odd, but around 44, it almost touches the earnings chart. (I have it on my other comp and will share it later today). All the stocks should be treated that way. (look for example what happened to Page today: FY12 EPS of 80.68 didn’t match the expectations of those who were just building castles in the air - and the stock tanked - doesn’t matter what the prices were earlier and what the prices will be in the future. Likewise, Mayur price-earnings chart suggested it could do much better than sub-500, and post results, the stock obliged). The idea is to reward the company that keeps on doing well, and punish the ones that destroy value.

Although this one doesn’t pass my test of strong competitive advantage / niche leader either, but so far they have been doing some right things . If they continue to do the right things, 25-30%+ RoE, they will be in a significantly large position, and the prices will follow. From our standpoint as investors, the most important thing is capital allocation based on several factors. Whether someone spends 1% or 10% or 80% or 100% on this depends on their capital allocation strategy, which could be different than mine, yours and others. I am willing to give this some time. It is not something for which I will stop eating pizzas :slight_smile: but I would rather have some of these seeds with me that might bear fruits in a few years. Meanwhile, in my pursuit of truth, if there are any major red flags, I will let this one go.

1). Link: