Invest Shoppe Research

Invest Shoppe India Ltd Force Multiplier –Shasun Pharmaceuticals

Shasun Pharmaceuticals is a manufacturer of active pharmaceutical ingredients (APIs), their intermediates and enteric coating excipients with a significant presence in some key generics. Shasun has created a strong product portfolio, building on its R & D Expertise, regulatory capabilities and multi scale production capacities. Shasun is also strengthening its services of contract research, custom synthesis, contract manufacturing and contract formulation services to clients. Shasun is one of the largest producers of Ibuprofen worldwide. The company offers derivatives of Ibuprofen like Ibuprofen Sodium, Ibuprofen Lysinate and S+Ibuprofen. It is also one of the major producers of Ranitidine and Nizatidine in the world. Its products are exported to countries across North America, Europe, Asia and Latin America. INVESTMENT RATIONALE Backward Integration Efforts The company is paving way for backward integration by entering into manufacture of intermediates, initially with material for some of its key APIs and later plans to extend the manufacturing of raw material for exports or sales to domestic pharmaceutical companies. Such move will reduce its dependence on Chinese and it expects to save the cost of raw material in the range of 10 per cent to 25 per cent, depending on the product, by manufacturing intermediates on its own. The company will be setting up a manufacturing facility for some of its petroleum products (which are used as ingredients in drugs) at Naidupeta in Andhra Pradesh with an investment of INR 50 crore. Evolving Revenue Mix The company has consciously shifted focus from low-margin Ibuprofen to high-margin derivatives and other APIs such as Ranitidine, Nizatidine, Gabapentin and Cycloserine. As a result of this, the contribution from Ibuprofen and derivatives has declined by 4 percentage points to 24 per cent in FY12. Though the dependence on Ibuprofen is still significant, with increased contribution from other APIs and new products such as Sevelamer Hcl and Sevelamer carbonate, the product concentration risk is expected to wane gradually. Strong CRAMS Pipeline The company assumed the inorganic growth route to mark its entry into the global CRAMS arena. Leveraging upon its strong relationships in API supply, skillful manufacturing capabilities and facilities along with regulatory compliance practices, it expanded CRAMS into India. The company has an impressive CRAMS pipeline of 17 more products, including API and intermediates, of which eight are in phase III and nine in phase II of clinical trials. Capacity Expansion The company has planned investment of INR 250 crore over the next two years in various expansion projects. This has the potential to contribute INR 750 crore to the consolidated revenue over the next three years. In the first phase, Shasun has expanded the formulation capacity at its Puducherry facility from 3-5 billion tablets. In the second phase, the company aims to double its capacity to 10 billion tablets over the next 2 years. The company is also setting up a green-field API plant at Vizag, which is expected to come on stream by March 2013. This apart, Shasun has augmented the capacity of Ibuprofen, its flagship API, and other derivatives significantly.

Force Multiplier Shasun Pharmaceuticals

Invest Shoppe Research

Invest Shoppe India Ltd Force Multiplier –Shasun Pharmaceuticals

Improving Financials The company posted revenue growth of 28% in FY12 from INR 835 crore in FY11 to INR 1066 crore in the fiscal gone by. Bottomline also grew to INR 100 crore in FY12 from INR 27 core in FY11. It has crossed the milestone of INR 1,000 crore turnover for the year ended March 31, 2012, and the next target it sets is to double it in next three years. Its plan is to become a billion dollar company in 2020. Debt-equity has also improved which were around 3.78 in the beginning of the year, but at the end of FY12 it shrunk to 1.54. OUTLOOK & VALUATION The company is expected to meet the targets it has set on the back of improved financials, robust pipeline and capacity expansions. The company trades at 4.3 times one year forward earnings which looks quite attractive in comparison to its peers. As the growth starts ticking in, this valuation gap will narrow and would lead to re-rating of Shasun. Although the stock has more than doubled in the last six months, the upside potential from a one-to-two year perspective still remains attractive. From the current market price of INR 123 we expect it to reach INR 173 levels in the near term. Guide to Invest Shoppe’s Classification of Stock Ideas Safe Haven: These are stocks which have low downside risk combined with a potential to generate decent returns. This mainly includes the stocks of the companies which are well established and have a proven track record. Investor Profile – Passive, Conservative Long Term Investors who wish to enjoy good Capital Appreciation with minimal chance of losing money. Regular day to day monitoring is not essential. Once in a quarter, review is usually sufficient. Force Multiplier: These are stocks which are potential multi baggers. This mainly includes companies which are on a growth trajectory and are emerging blue chips. Investor Profile – Active, Aggressive Long Term Investors who wish to go for enormous capital appreciation with a calculated risk. Regular day to day monitoring is not essential. However, stock performances and news flow should be reviewed at least once a month. Fruit Bearing: These are stocks which provide a good dividend yield at the current levels. They may or may not have a great upside potential but would certainly not have any significant downside risk Investor Profile – Investors with minimal risk appetite who wish to have regular inflow of tax free funds. Punter’s Delight: These are stocks which generally provide speculative gains in a very short period of time. This mainly includes news based and buzzing stocks. Investor Profile – Traders, Short term Speculators who wish to enjoy short term gains and are ready to take risk attached with these stocks.

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