3/ R&D Expertise: Market leader across many intermediates | 66 R&D Personnel | 8 Process Patents | 1-2% of rev
High Entry Barriers due to the complex chemistries
The capacity of 6060 MTPA (3600MTPA recently through inorganic): old plant of 2460 MTPA at 60% utilisation
4/ Breakup of the rev 👇
Could be helpful in tracking how the offtake of other companies are; for ex: they supply intermediates of Dolutegravir to Laurus Labs.
5/ 5 customers account for 44% of the rev: Concentration risk; any change in end product offtake will have reverberations into their P&L.
GMs have increased from 33% to 45% in 3yrs: Might not be sustainable
6/ Acquired the incremental 3600 MTPA capacity for just 93crs; ability to scale up with higher value products is a key trackable.
7/ Financials:
High Working capital requirements: weak cash flow conversion | High Asset Turnover ensures a good return on capital
Revenue growth might sustain as the new plants ramp up, although margins look to be on the higher side (Gross margins look subnormal)
8/ Risks:
- Unlisted group company into APIs which wasn't mentioned in the IPO prospectus; check out the tweets below by @arpit971 & @tusharbohra
- Any adverse USFDA reaction
- Not clear if they can pass on the RM price increases
9/
- Operations are dependent on the ability to collaborate & innovate; a key trackable
- Newly acquired plants (60% of total capacity) from Gujarat Organics might not yield effective results.
- Product concentration risks: 40-45% of rev from 2 products 👇
10/
Outlook:
Better be cautious rather than aggressive in betting on a new company (not to forget, in a sector which is currently valued as if nothing can go wrong) with so many unknowns; even the valuations are not in our favour.
Comparison with the peers 👇
End of Thread.
Edit: They have mentioned their group company "Ami Lifesciences" which is into APIs in their RHP.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
Semiconductor shortages are creating some fantastic opportunities in the broader stock market; think FY24 & swing the bat.
On the contrary, the current supply crunch will help the OEMs to pass on the increased RM costs.
This will reflect in the bottom line & gross margins (OEMs have seen a 6-7% reduction from FY18) when this normalizes.
High uncertainty in the short term is the best friend of a long-term patient investor.
Look for companies that have high operating leverage play (including financial leverage), are not being talked about in the investment circles & where the promoters have everything to lose.
"We are carrying Rs 27,936 crore of fixed-rate liabilities at 8.66%, largely legacy, and you can imagine the upsides when these are replaced by low-cost deposits." ~ V. Vaidyanathan, IDFC First Bank FY21 AR.
"We advise our product teams to design products in such way that it is meant to be sold to our 'near and dear' ones. We make products with transparent pricing and fees."
"We don’t pressurize our employees to 'somehow' sell high-margin products to meet fee targets. The list of our 'Customer First' features is long."
Fresh Issue of 165crs (50 for capex | 48 for Working capital | 20 for debt payment) + OFS of 237crs (Partially by promoter & PE Tano selling out as the fund tenure is up)
~ Total raise of 402crs
2/ About the company (Not a Biotech company)
A Contract manufacturer for formulation cos. (204 in total) for Indian markets & a small domestic OTC biz
3279 products, 4 plants with 700cr tablets/capsules capacity
Emphasis on chronic (60% of rev) & complex generics (70% of rev)