Vivimed Labs

Highlights: Vivimed Labs

FY 07-12 CAGR: Sales: 32%, PAT: 31%

FY13E EPS : 70+ ( FY12: 40) . FY13E Sales: 1000Cr+ ( FY12: 668cr)

Pharma / speciality chemicals company supplying speciality ingredients to Beauty & Healthcare Companies like Unilever, Loreal etc in 50+ countries. Recession proof business with very high entry barriers about to break into 1000cr club, available at FY13 forward P/E of 5.

Supplier of speciality ingredients and performance enhancing chemicals for a wide variety of applications such as,oralcare, skincare, sun protection, anti-aging, haircare, photochromatics and pharmaceuticals. Products range from Triclosan in toothpaste, ZPTO in shampoo, UV-A,UV-B absorbers in sunscreen, NDGA in anti-ageing creams etc.

Strong relationships with global majors like Unilever, P&G, Johnson&Johnson, LâOreal, Novartis & AstraZeneca. Strong entry barriers in the business: It takes 5-7 years to break into a global majors like LâOreal or Unilever. Exports account for more than 50% of revenues.

Three acquisitions made recently in pharma. With focus on R&D, and 100+ scientists in it's fold, the company consistently strives to develop newer molecules in the niche segments like Osteoarthiritis, Antipsychotic, Dermitology and Oncology.

IPO in 2005 -raised $4m at Rs70/share. Earnings growth mainly on back of acquisitions made over the years. Placement also made to Kitara, Jacob Ballas and IFC but equity dilution much lower compared to growth in earnings. Vivimed does not plan to go for any more fundraising in the near future from Private Equity players or any other primary or secondary market avenues.

(1) The Company has envisaged a growth plan by focusing more on innovation led R&D products in specialty chemicals, thereby giving scope for margin expansion.

(2) Improvement in the working capital cycle is bound to happen gradually with credit period ranging between 90-100 days amongst various geographies.

(3) Vivimed hedges only 20-30% of its exports, thereby benefitting from rupee depreciation.

The management has re-iterated its revenue target of Rs1,000cr+ based on the Uquifa integration. Focus on IP and biotech related products (which ensures high gross margins of ~60-70%),

Specialty Chemicals: The specialty chemicals comprise 38% of the total sales and have grown by mere 2.6% yoy in 1QFY2013. The slowdown in growth is largely attributed to lower off-take from ISP alliance (as ISP got acquired by Ashland in August 2011). However, the management

seems confident of a pick-up in FY2013E through the ISP alliance, as the margins improved to 18.7% (up 400bp yoy).

Pharma: The revenues from pharma business sky-rocketed to Rs167.4cr in 1QFY2013 based on revenues from the acquired entities (namely, Uquifa, Klar Sehen and Octtantis Nobel).

capex plan of the company

1. SEZ at Srikakulam district, Andhra Pradesh, Investment: 120cr ETA: March 2014

2. Formulation dosage facility, Choutuppal, Investment: 40cr, ETA: June 2013

3. Expansion of existing manufacturing facilities at Bonthapally, Investment: 10cr, ETA: June 2012

4. Expansion of existing manufacturing facilities at Bidar, Karnataka, Investment: 10cr, ETA: June 2012

I think the stock is relatively under researched. I do have research reports from Nirmal Bang ( holds nearly 5% stake) with a target of 650 and Reliance Securities with a target of 575 ( CMP 365). In fact out of 45% public holding, about 30% is in strong hands. With the 1000cr sales it will attract a lot more attention. I think it gets the valuation of a regular chemeical company but the quality of business is much different. Earlier, most of the sales were from Chemicals division but going forward, both pharma and chemical will be same. Net EBIDTA margin is 20%, PAT margin 9%

The website of the comapny is great and you can find invester presentations etc

Management Interview:

Not filling in too many details here. I am hardly the guy who can pick holes in balance sheets or can 'see through' companies as some magicians in this forum do, so need the advise of seniors.

Particulars Mar-12 Mar-11 Mar-10 Mar-09 Mar-08 Mar-07 Mar-06
(Rs.Cr) (Rs.Cr) (Rs.Cr) (Rs.Cr) (Rs.Cr) (Rs.Cr) (Rs.Cr)
Gross Sales 668.31 416 343.49 276.12 181.01 136.75 79.02
PBIDT 133 85 70 48 32 26 17
Interest 28 21 21 17 7 5 2
PBDT 105 64 48 30 25 21 15
Reported Profit After Tax 63 49 31 19 16 14 9
Adjusted Profit After Extra-ordinary item 63.1 48.8 31 19.4 16 13.6 9.3
EPS (Unit Curr.) 45.3 48 31.1 20.6 17 14.4 12.8
Dividend (%) 30 20 15 15 10 0 0
Equity 13.9 10.2 10 9.4 9.4 9.4 7.3
Non-Promoter Holding (%) 54.9 49.7 44.6 41.5 41.2 41.2 47.3
PBIDTM(%) 19.9 20.4 20.3 17.2 17.7 19.2 21.1
PBDTM(%) 16 15 14 11 14 16 18
PATM(%) 9.4 11.7 9 7 8.8 9.9 11.7

Disclosure: Invested

Key thing to monitor in vivimed is debt. for the first quarter ended june 12, company paid interest of 15 crores. So I guess it will end up with debt of around 500-600 crores by end of fy 13.

besides this, I would be wary of companies which have to keep on acquiring other companies to maintain their growth.

I had posted the synopsis on this stock back in aug 09 on TED with foll link:

Valuations wise the scrip looks quite attractive at around 5-6 PE but I dont see too much chances of some big re rating in this one unless it can show some real outperformance and deal with the debt situation in a proper way.

Thanks Hitesh for your comments. It gives me a lot of comfort to know that this used to be your long term pick:))as a proxy to FMCG. I am more comfortable with steady earnings based growth as it gives downside protection. The stock is very near to it’s 200DMA and I’m hoping that should be a strong support. It’s actually gone through a big rerating already and has since corrected 20%.

The consolidated D/E ratio has come down from 1.56 in FY11 to 1.2 in FY12 so I guess it’s not really out of whack? They do have positive free cash flows as well. The mgt does not plan to do any more dilution or acquisition and plan to integrate their buys.

I did recently buy a bit in ‘debt ridden’ companies like Jubilant and Arshiya as I thought the debt overhang was already priced in the share price and the management and the business quality and also the earnings momentum was great enough to navigate the ship out of rough waters. Also, the interest rate and rupee couldn’t get too worse from here. With huge liquidity chasing quality, who knows a few things might get overlooked:)).

I cant see myself chasing momentum or able to keep track of commodity prices so i’d rather stick with defensives or earnings visibility.

Pardon me folks if I sound amateurish – I very likely am:))

I agree with Hitesh and would advice caution here.



Thanks Ayush, Hitesh. I guess I’d better pare my holding here

The recent correction in the stock price really tempts me into buying some more.As Hitesh and Ayush have mentioned,the debt levels are a concern.But from a long term term point of view,I feel these levels are a good point to add.Considering the growth prospect of FMCG industry,I would like to know the views of senior members on this company.Do you see any further downside in the price from here on?


I have a small allocation in my portfolio(about 3%),Please advice as I am a beginner in the world of investing.Thanks

They have released their latest Annual report. I do believe it deserves a look.

Highlights of the Concall by Capital Mkt:

* Net Sales increased 11% on a y-o-y basis in Q2FY'14 to Rs. 307 crore but down 11% on a q-o-q basis. Net Sales in Q2FY'14 was driven by the growth in the Healthcare segment. This was led by continued ramp up of a key CMO account in the API business and consolidation of Vivimed Alathur in the Contract FDF segment. Specialty Chemicals segment declined due to the strategic portfolio rationalization initiative. During the quarter, the Company reduced volumes of less profitable imaging chemical products
* EBITDA decreased 3% y-o-y but increased 7% q-o-q to Rs. 52.4 crore and margins stood at 17% lower than 19.5% in Q2FY'13. However EBITDA margin improved on a q-o-q basis by 285 bps to 17.0% driven by improved profitability in the Specialty Chemical business. This is despite the profitability in the Healthcare segment being impacted by prolonged wait for regulatory approvals in the FDF business and some product specific issues in the API business
* Net Profit decreased 35.9% y-o-y to Rs. 16.4 crore and margins stood at 5.3% compared to 9.3% in Q2FY'13 and 5.8% in Q1FY'14.
* Finance cost increased due to higher working capital utilization and an increase in long term loans at the standalone level
* Effective Tax Rate (ETR) declined due to deferred tax asset created in the API business which reduced the overall ETR at the consolidated level

Healthcare Segment

* Healthcare formed 67.6% of Q2FY14 sales
* Process improvements shall start to deliver results in FY'15 for the current API product portfolio leveraging on Indian R&D
* Contract FDF have experienced push back due to prolonged wait for regulatory approval. Audit completed in Sept 2013. This situation is expected to correct itself in the current quarter and result in meaningful contribution in the second half of the year
* Acquisition of the US FDA approved FDF plant has opened the regulated market gateway, two ANDA's and in-house API manufacturing has driven the domestic FDF to the next level

Personal Care Segment

* Skin Care: Increased market share and higher allocation with existing clients; opportunities in newer markets in Latam. New product introduction and sampling remain core focus for H2 FY2014
* Hair Care: Encouraging volume growth in the Middle East. Increased client penetration and new opportunities in one Latam market. A new Hair Dye project in Southern Europe under progress
* In the process of adding two new in-marketing initiatives to the distribution vertical
* Identified certain new peptide products to be developed

Home Care Segment

* Increased market share in Asia and Middle East, and received approval for three new products for preservatives

Industrials Segment

* Decline in the segment revenues due to a strategic defocus on the imaging chemicals business (decreased from 57.0% in Q1 FY2014 to 5.2% in Q2 FY2014)
* Photochromic Dyes growth in line with expectation

Commenting on the performance, Mr. Santosh Varalwar, MD and CEO of Vivimed Labs said:

"This quarter has been very eventful for us with the recent acquisition of the Alathur SOD facility from Actavis. Integration and consolidation of businesses across all verticals remain one of our highest priorities. Vivimed continues to make investments in strengthening our R&D base in India across healthcare and specialty chemicals segments. In the Healthcare business, we are positioning ourselves to capitalize our capabilities as an integrated player with a differentiated focus on R&D. In the Specialty Chemicals business, Vivimed is focused on successful execution of the recent order wins even as we invest in new products.

Despite near term challenges, we are confident that with our investments towards a differentiated product pipeline, continued focus on client mining and consistent regulatory track record will hold us in a good stead to deliver long term growth and sustainable profitability."

Fortunately I exited this stock long time back. The biggest learning that I had here is what Hitesh had posted above and I also later read in few books: "I would be wary of companies which have to keep on acquiring other companies to maintain their growth. "

Even above, the first Line MD says is “This quarter has been very eventful for us with the recent acquisition of the Alathur SOD facility from Actavis. Integration and consolidation of businesses across all verticals remain one of our highest priorities.”

I dont think they’ve been able to do that for any of their acquisitions over the years !

Just Stay away from Serial acquirers

Highlights of the Concall by Capital Mkt

  • Net sales grew 2.7% to Rs 344.7 crore for Q3FY’15 compared to Q3FY’14 EBITDA margin improved 152 bps on a y-o-y basis to 17.5% while net profit increased 8.3% to Rs 20.6 crore.Q3FY’15 net Sales has been flat on a y-o-y basis due to delays in existing product ramp up in both the healthcare and specialty chemicals segments. However, the profitability across segments has improved significantly due to benefits of change in product mix, ongoing cost optimization initiatives and lower raw material prices
  • EBITDA margins improved 152 bps on a y-o-y basis. EBITDA growth of 12.4% was recorded despite flat revenues. During 9M FY2015, EBITDA grew by 11.1% with 16.7% margins, an improvement of 112 bps.Depreciation during the quarter was higher on account of the revision in the useful lives of the fixed assets as per the new Companies Act. Depreciation for Q3FY’15 was higher by Rs. 2 crore
  • Finance cost for the quarter was Rs. 19.4 crore compared with Rs. 15.6 crore in Q3FY’14 and Rs. 19.7 crore in Q2FY’15. This y-o-y increase was due to higher INR borrowings in the standalone entity.Net Profit margin of 6.0% was benefited by deferred tax assets in a healthcare subsidiary

Healthcare Segment

  • Total revenue stands at Rs. 234.4 crore up 2.9% y-o-y and 9.1% q-o-q; EBIT margin of 6.4%.In the API segment, manufacturing volume has shown consistent improvement over the last quarter. The company focused on optimizing capacity utilization and harnessing the robust order book.Going forward, API business is expected to see improved profitability as benefits of a strong order book and lower raw material prices start to make contribution
  • In the finished formulations (FDF) segment, performance improved significantly due to volume growth in the India institutional business as well as brand extensions in the Pain Management and Antibiotics brand formulations
  • The FDF business will remain an area of growth with new product launches in the RoW and CIS markets. In the regulated markets new product filing will be the key priority and an area for investment

Specialty Chemicals segment

  • Total revenue stands at Rs. 109.3 crore up 10.7% q-o-q but flat y-o-y; EBIT margin of 24.5%.Margins continue to improve due to strategic portfolio rationalization and ongoing efforts to optimize operating expense.In the personal care segment, manufacturing volumes were largely driven by the skin and hair care products. These helped offset the subdued off-take in the older products which have been deferred due to customer specific issues
  • In the home care segment, volume for antimicrobials remain muted which was partly offset by increased volume of specialty dyes.Industrial segment remained flat but photochromics continued to perform well driven by new product offerings. This has also helped profitability due to the continuing change in the product mix in favour of higher value added products

Commenting on the performance, Mr. Santosh Varalwar, MD and CEO of Vivimed Labs said:"Q3 FY2015 has been a quarter of stabilizing operations at Vivimed Labs. While the topline has been flat, our ongoing portfolio rationalization and cost optimization efforts have yielded meaningful results. We reported significant profitability improvement with EBITDA margin of 17.5%, an increase of 152 bps over same period last year.

In the API segment, we have a strong order book, both in the generic and CMO businesses, which gives us the confidence to continue the growth momentum. Our formulations business reported strong performance with India institutional volumes picking up and select brand expansions. Specialty Chemicals business continued to be robust with improving profitability levels as we focus on new product launches for existing customers as well as expand our customer base.

We will remain focused on investing in our global R&D capabilities and new product filings to build a strong product pipeline to drive growth in the coming year."

A-API -75%–GENERIC-88%, CMS-12%

4 PUBLIC-34.1

Company is in bulk pharmaceuticals and now transforming into FDF and USFDA- GENERIC DURGS SUPPLIER.
Vivimed is growing 15-20% annually in sales. EDITA Margin is 12 to 13%. Net profit margin is 5.2 to 5.5.
SPECIALITY CHEMICAL has EDITA margin is 20/21-% and will be maintained.
Pharma division has Edita is 12-13% and profit margin is 4%. Growth will drive EDITA from 12 to 16-17% this year AND Profit margin will be 8%. USFDA generic drugs will drive growth of EDITA TO 20%

RATIOS----P/B-0.5, D/E-1.2, PRICE /SALES-0.25, P/E-5.
Now company is planned to grow in FDF and USFDA- generic drug supplier in 2015 and 2016. Growth out-look is 15 to 20% in both year 2015 and 2016. By March 2017 Eps will be 75 to 85 and Net profit martin will be 9-10%. This will re-rate the script from 256 to 600. VIEWS ARE INVITED FROM FRIENDS. I know that it was discussed in 2012. I am again starting diacussion.

Now it becomes Net profit Margin EXPANSION story. NPM was 5.2 till last year. From this quarter NPM is 7.3% .DUE TO REDUCED PRICES IN COMMODITY NPM FURTHER INCREASED UPTO 8%. BECAUSE OF USFDA approval it will reach to 9-10%. AT THE P/E 10 VIVIMED WILL REACH TO 550 TO 600.


VIVIMED LAB RESULT.- My analysis. For Q1 2016
Top line is 332cr against 366cr last year.
Net profit is 24.17 against last year. Almost increase by 40%.
Net Profit margin is 7.2% against 5.2%.
Expenses reduced by 17cr other and 2.5cr in finance costs.
Now see profit before tax is 33.39 against 23.16 of last year and 16.34 of Q to Q. Increase of 30% compare to last year and 100% compare to march quarter.

Company had paid 5.5cr tax against 72cr of profit last year.

Company has paid 9.21cr tax in June quarter–two times than last year and almost 30% of net profit. Normally company is paying 6-12% tax of profit. That mean promoter is eyeing more profit in this year.
This is my analysis of vivimed lab.
disclosure.- I am fully invested in it. This neither any buy or sell recommended. This is

VIVIMED LABS - Appointment of Mr Amarjit Singh Bhatia as CFO wef 14th Aug’15 - BSE Announcement

  • Appointment of Mr. Amarjit Singh Bhatia, as the Chief Financial Officer of the Company effective August 14, 2015.

As Per Mr Singh’s Linkedin Profile - Below is his past work experience - very short stints in the recent past 2 jobs. Linkedin says its been 2 months at Vivimed as CFO and official announcement came from the Company yesterday.

  1. Chief Financial Officer - Vivimed Labs Ltd - July 2015 – Present (2 months) Hyderabad Area, India
  2. Chief Financial Officer - POLYGENTA TECHNOLOGIES LTD. - April 2014 – March 2015 (1 year) Mumbai Area, India
  3. CHIEF FINANCIAL OFFICER - DBM Geotechnics & Constructions PVT. Ltd. - June 2012 – March 2014 (1 year 10 months) MUMBAI
  4. CHIEF FINANCIAL OFFICER - TATVA GLOBAL ENVIRONMENT LTD. - December 2007 – April 2012 (4 years 5 months)
  5. VICE-PRESIDENT FINANCE - SARAYA GROUP OF COMPANIES - October 2005 – December 2007 (2 years 3 months)

Jun’15 note post management meet at their Hyd ofc…didnt knew Vivimed thread is running separately at VP

Key points of discussion with MD & CEO – Mr Santosh Varalwar

• Guidance and other updates: Management indicated that the issue is with Standalone entity as it over-levered to make acquisition which led to cash flow issues in this business. That is the reason why they couldn’t declare dividend this year as they cannot pay dividend from its overseas subsidiary. Mexico and Spain facilities are profitable and positive on its cash flow even after spending EUR16mn over past 2 years and new API plant they acquired in Chennai from Actavis has potential to generate Rs 500cr revenue with the approvals they have (4 ANDAs approved facility – currently doing Rs 150cr biz). He said, with the assets they hold (12 factories in total), company can grow min 25-30% every year post FY17. He said, with Ebitda of Rs 220cr and Debt of 900cr is not that bad plus he indicated that Ebitda number will grow to Rs 280cr in FY16 and Rs 320-350cr in FY17 which will not be much problem to the company.

• Rational behind multiple acquisition: I asked about the reason for such huge acquisition of Actavis that too after so many acquisition they had. Mr Santosh answered that one can argue on it that it was bad timing but from growth perspective the facility they got from Actavis have gave them lead time of 5-6 years (if they went on for Greenfield investment). Post acquisition, they continue to invest on Intellectual Properties (IPs) there and will file 8 ANDA every year and once a product gets registration that will bring $4mn revenue from each registration. They aspire to become a billion dollar company and for that the acquisition will shorten the lead time.

• Capex: Management indicated they will be spending another Rs 50cr for all its facilities put togather.

• Current situation on debt and improving liquidity: Overall there is short term cash flow issues as capex made in the past will take another 12 months to fructify. Company plans to reduce debt by 100-150cr of which 75-80cr will come from SEZ land sale and 25cr from other noncore properties around Hyderabad and balance from internal accruals. Monetization of those land is taking prolonged time due to Telangana issue leading to enquiry not getting converted. This can be an issue here. Company also plans to restructure some domestic standalone debt to overseas and talks with bankers are going on. Standalone debt is Rs 600cr and Overseas debt is Rs 300cr. Total debt Rs 900cr. Company did mentioned that they are due $6mn this year (around Rs 38cr).

• Recent stock corrected due to: HDFC sold 2.2 lakh shares, reason being no dividend declared. With the sale some retail guys also sold in panic and also magin call against pledge. Mr. Santosh informed tht they hv mey hdfv guys and explained the situation. He said they wont sell any further. But key thing is they hvnt bought it back when stock almost halved. Mr Santosh also indicated that they would be buyer but funding the same is an issue at this point. Kitara funds 15cr will come in once they gets exchange (NSE & BSE) approvals. They are looking to more funds to manage current liquidity issue

Overall i felt that MD was genuine but other family members have other vested interest. Current stress on financials and balance sheet will continue for sm time i think - FY16 will be crucial year for them to consolidate its acquisition especially Chennai facility rampup.

For me Q1 results were weak, if you see its standalone numbers (Indian Ops) they reported Sales, Ebitda and PAT degrew -22%, -11% and -55% yoy and -37% , -18% and -61% qoq respectively during the qtr. While its Overseas subsidiaries which drove Q1 earnings. Promoter holding during the qtr came down to 36.99% from 37.92% in Mar’15. Promoter pledge consequently inched up higher at 83.39% vs 78.49% qoq.

Discl: Not Invested

This seems to have all the hallmarks of a very risky bet.

Huge debt of 900 crores against a market cap of 480 crores.

Low promoter holding (less than 50%) and out of that too a lot of pledging.

Cash flow problems to remain for the next year atleast as they seem to be finding it hard to sell the land assets they want to sell. And once the buyers know that you are in distress they willl want things even more cheaper.

Debt is due to acquisitions. For a company its size, keeping on binging on acquisitions esp when you already have loads of debt is not a healthy sign.

If one looks at the past gyrations of the stock, it always has had huge volatility and has often lost 50-75% market cap within no time.

So the question that needs to be asked is how much of the portfolio can one bet on a company like this even if one is convinced about its merits.

disc: not invested.


Hitesh Bhai.,
The company seems to be turning around and debt also is reducing. What is your take now?

debt reduction underway.
in concal management indicated that promoter pledging would be reduced.
optically looks very cheap. but market not giving much credence to this stock.
staying away for now. will watch out for any traction in debt reduction and pledges to reduce.

Vivimed has issue with its numbers… They were not giving required information to their auditors and Auditor has to resign later…