Disclaimer
The person authoring this post is not a Research Analyst as defined by the Securities and Exchange Board of India (SEBI). This does not constitute investment advice. The author does not own shares in the company being discussed and the views expressed in this post are solely his own. Should anyone wish to act on the views expressed in this post, consult your Investment Adviser before acting on the same. The author is not responsible for any related gains made or losses incurred.
Summary
Incorporated in 1987, Vivo Bio Tech is a CRO offering Drug Development & Discovery Services to Pharmaceutical & Biotech Companies worldwide.
Shareholding Pattern | Return Ratios | Valuation Metrics | |||
---|---|---|---|---|---|
Promoter Holding | 39.84% | TTM OPM | 37% | Market Cap | 119 Cr |
DII / FII | 0.00% | ROE | 15.0% | P/E | 20.4x |
Public (> 2 Lakh) | 47.61% | ROCE | 18.6% | P/B | 2.9x |
Public (< 2 Lakh) | 12.55% | D/E Ratio | 0.75x | P/OCF | 8.4x |
Board of Directors
- Mr M Kalyan Ram – Holds MBA and M. Com. 18+ years of experience in Accounting, Finance and Administration.
- Mr K. T. V. Kaladhar – M. Com from Andhra University. 20+ years of experience in Finance.
- Dr A Sankaranarayanan – Discovery biologist with more than 35 years of experience in Pharmaceutical R&D. Holds M. Pharm. And PhD (Pharmacology)
- Adv. Sunder K – Practicing advocate in the High Court of Telangana. 25 years of experience.
- Ms Kunda Kalpana – 10+ years of experience in Teaching, Scientific Research and Clinical Data Management. MS (Bio-Technology) from Bangalore University. Associated with Virinchi and Kellton Securities. Former VP at Clinnova Research.
- Mr Ravindran Hariharan – Practicing CA since 2009. 15+ years’ experience in accounting, finance and taxation.
The Business
The company offers services in the areas of In vivo & In vitro toxicity studies, Pharmacological investigations, Pharmacokinetic & toxicokinetic studies, Genotoxicity screening, Analytical services among others.
Services Rendered
- Pharmacology – Study the effects of various endogenous agents and xenobiotics on tissue and organ function.
- Toxicology – Study of harmful effects of various factors on people, animals and the environment.
- Pathology – Study of the causes and effects of diseases.
- Analytical Chemistry
- Lab Animal Diagnostics – Tests the impact of bacteria, viruses, parasites and fungi on lab animals. The company is the largest supplier of SPF lab animals.
- Custom Model Generation and Breeding – Genetically modified mice, rabbits, rats, guinea pigs, canines and hamsters.
Physical Capital
- 125,000 sq. ft. Preclinical Facility along with additional Satellite facilities located at Pregnapur Village, Telangana approved by the AAALAC, GLP, CPCSEA, CIBRC, DSA and ISO.
- DSIR-approved Biologic Research Facility
Partnerships and Collaborations
- Taconic Biosciences Inc (USA) – Entered into an agreement under which Vivo Bio Tech will gain rights to breed and distribute select Taconic mouse and rat models in India
- Cyagen Biosciences (USA) – Entered into an agreement under which Vivo Bio Tech is appointed as the Authorized Distributor of Cyagen Biosciences’ complete product and service portfolio in India.
- Special Diets Services (UK) – Authorized Distributor for lab animal diets in India. Largest supplier in Europe.
- Elm Hill Labs (USA) – First to commercially distribute SPF Guinea Pigs in India. Breeders are sourced from Elm Hill Labs.
Impact of COVID-19
Since the company is ancillary to vaccine and pharmaceutical manufacturers, the company was categorised as Emergency Services. Operations were carried out at 50% capacity.
Investment Thesis
Capacity Expansion
- The company raised INR 18.17 Cr of debt financing to invest in new equipment, develop facilities and carry out process validations.
- The company aims to develop an End-to-End Drug Discovery platform.
- Newly added capacities will categorize Vivo Bio Tech as a full-service CRO, which is limited to only a few companies in the world.
- Revenues should reflect in FY23 with robust operating margins.
Contract with Biological E
- The company has entered into a long-term supply contract with Biological E, one of the largest vaccine manufacturers in India, as a preferred vendor.
- The contract is expected to annually add INR 20-30 Cr to the top-line for the next three years.
Tailwinds in Pharma Sector
- CROs assume the burdens associated with drug discovery and development from pharmaceutical companies.
- The Indian pharmaceutical industry is poised for growth over the next couple of years with massive tailwinds.
- The government announced a PLI for KSM and API manufacturers which will further boost production.
- With Vivo’s market position as the leading supplier of lab animals along with their fully integrated CRO services, the company will be a beneficiary of all the positive prospects in the domestic and international pharma sector.
Investment Risks
Long Operating Cycles
The company’s cash conversion cycle is between 1-2 years. This could lead to periods where the company has very limited working capital.
Low Probability of Success
- The drug discovery process involves filtering through millions of molecules and combinations before a single formulation is discovered.
- This is further sent for approvals which, on completion, may or may not guarantee profitability.
- This risk is transferred from Pharma companies to the CRO.