Thread by @ValueEducator

Detailed 🧵 on #SakarHealthcare - Micro Cap which is doing Huge Capex for Oncology Drugs 💊💊

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CMP - ₹ 233

Company Overview:

Sakar Healthcare is a pharmaceutical company incorporated in 2004. They do contract manufacturing majorly for sterile drugs and they also export to various emerging markets under their own brands.

They manufacture a variety of dosage forms including Liquid Injections, Lyophilized Injections, Dry Powder Injections, Dry Powder Syrups and Oral Solids Like Tablets and Capsules. Their biggest therapy area is Antibiotics which contributes to 41% of revenues,

followed by Vitamins (15%), Antimalarial (14%), Anti infectives (5%), Antacid (4%) and Laxative (4%). In antibiotics, the majority of their revenues come from the Cephalosporins.

Business Segments:
Sakar has 3 business segments viz. Contract Manufacturing(CMO), Exports and Loan Licensing. Under CMO, they manufacture drugs for big pharmaceutical companies including Zydus, Intas, Baxter, Torrent, Merck, Ferring Pharma, Ipca Labs, Indoco Remedies, etc.

Under the export segment, the sell drugs under their own brands to 53 countries in APAC, Latin America, East & French- West Africa, CIS, Europe, etc. They sell their products through over 75 distribution partners.

Under the Loan Licensing segment, they collect fees from customers for doing conversion and packaging of finished formulations.

Foray into Oncology:

The company has entered the oncology segment by setting up a greenfield facility in Bavla, Gujarat - about 15 minutes away from the existing facility. It is an integrated facility with in-house R&D, API and formulation manufacturing.

They have installed modern technologies in this facility like flow chemistry and are trying to develop green chemistries. They will be manufacturing Oral Solids (Tablets and Capsules) and Injections (Liquid and Lyophilized).

The R&D, API and oral solids units have been commercialized and the injectables unit is expected to come online by March 2023. The OSD and API units have received WHO GMP approval.

Below is the list of products they are planning to manufacture at the facility

They will be exporting the drugs under their own brands as well as contract manufacturing for their partners. The company has already signed an agreement with Zydus for the manufacture of oncology drugs

Capex:

The company undertook a capex of ₹194 Cr for setting up the greenfield facility for oncology. To fund this capex, the company has availed debt of ₹95 Cr. They also raised funds through equity sale to Swiss PE fund - HBM Healthcare.

HBM initially invested ₹14.85 Cr in March 2021 and then invested ₹24 Cr in June 2022. The balance amount will be funded through internal accruals and promoter’s contribution. Management has said that they expect 3X asset turns from this capex.

Promoters and Management:

Financials:

Revenue & EBITDA

ROCE & Debt

Guidance:

The management has said that they are expecting additional ₹600 Cr coming from oncology alone in 4-5 years with 30% EBITDA margins. They are aiming for a ₹500 Cr topline by 2026 with 60-65% revenues coming from oncology.

Risks:

The company will be facing a lot of competition from much larger companies in the oncology segment. Players like Natco Pharma have already commercialized all the molecules the company is planning to launch and operate in the same markets the company plans to sell

its products. The promoters also have another company - Bisil Plast which is into PET bottle manufacturing and is not traded anymore.