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Dear Reader,
We are glad to inform you that our Hidden Gem stock of April'15 - SMS Pharmaceuticals Ltd (BSE Code: 532815, NSE Code:SMSPHARMA) has given excellent returns to our Hidden Gems members in period of 8 months. Our team suggested Buy on SMS Pharmaceuticals Ltd at price of 534.40 on 09 May'15 with a target price of Rs. 1100.
SMS Pharmaceuticals has recently made all time high of Rs. 1040 giving maximum returns of 95% to our members in period of 8 months. Today, share price closed at Rs. 978.30 giving as on date returns of 83%. We suggest our members to continue to hold the stock as we believe company will continue to perform well in coming quarters like that of previous quarter.
In Sept quarter, net profit of SMS Pharmaceuticals rose 103.69% to Rs 10.49 crore as against Rs 5.15 crore during the previous quarter ended Sept 2014. Sales rose 12.41% to Rs 141.84 crore in the quarter ended Sept 2015 as against Rs 126.18 crore during the previous quarter ended September 2014.
Moreover, management has decided to do the sub-division/ stock split of Rs. 10/- per share of the company into the shares of Rs. 1/- each. Record date of the same is fixed as 18th Dec'15. This is a good move as it will increase overall liquidity and increases shares trading volumes in stock exchanges.
In Sept quarter, net profit of SMS Pharmaceuticals rose 103.69% to Rs 10.49 crore as against Rs 5.15 crore during the previous quarter ended Sept 2014. Sales rose 12.41% to Rs 141.84 crore in the quarter ended Sept 2015 as against Rs 126.18 crore during the previous quarter ended September 2014.
Moreover, management has decided to do the sub-division/ stock split of Rs. 10/- per share of the company into the shares of Rs. 1/- each. Record date of the same is fixed as 18th Dec'15. This is a good move as it will increase overall liquidity and increases shares trading volumes in stock exchanges.
Below is the summary of SMS Pharmaceuticals Ltd shared by our team under Hidden Gem stock recommendation - April'15
1. Company Background:
SMS Pharmaceuticals Ltd. is a global player in API manufacturing
having strong research and manufacturing team supported by state of art
facilities. Company started off as a single facility single product
manufacturing company in 1990 grew to be a multi-location group having product
list spreading across an array of therapeutic segments. SMS Pharmaceuticals is
currently having seven multi product facilities in operation and two research centers;
SMS Pharmaceuticals has truly graduated in to big league with more than 850
employees working for it.
SMS
Pharmaceuticals is an integrated pharma company with business presence in over
70 countries. SMS Pharmaceuticals is focused on API manufacturing and is the
single largest producer of anti-ulcer products and is renowned among the
clientele for the excellent quality of product and customer service.
The
company is diversifying into CRAMS by creating research and manufacturing
facilities bettering the requirements of the regulatory markets to appeal to
international clientele. SMS Pharmaceuticals is venturing into highly
specialized segments by building its API and formulations manufacturing
facility in Andhra Pradesh to target the niche market segments.
Merger
of Sreenivasa Pharma Private Ltd with SMS Pharmaceuticals Ltd has given a new
boost to the company, SMS Pharma has also completed the takeover of Plant
Organics.
Recently
SMS Pharmaceuticals has established new state of art corporate research center
with ultramodern facilities encompassing the whole gamut of research activity
viz. from product conception to development, scaling up and DMF preparation.
This is supported by well-equipped analytical wing and a fully functional pilot
plant. This new facility will enhance our existing offerings from a contract
research and custom synthesis point of view.
R&D
at SMS Pharmaceuticals drives the company’s competitive edge, reflected in the
introduction of pioneering products and processes with a superior price-value
proposition. Strong R&D has been at the core of SMS growth since its
inception. Company started R&D activities with 4 doctorate scientists
supported by 20 senior chemists in a 10000 Sq.ft area.
SMS recently expanded its R&D facilities by creating a state
of art corporate research center with infrastructure and expertise to carry out
all the activities from product conception to the development, scale up,
stability studies culminating in preparation of the DMF.
Product range
of the company includes:
- API and Intermediates
- Cytotoxic Solid Dose, Sterile Cytotoxic Liquid, and Lyophilized Products
- Bio Products
- Inorganic Products
- Nutraceuticals
Different
divisions of the company:
Manufacturing:
SMS
Pharmaceuticals Ltd. is one of the leading pharmaceutical manufacturing
companies in India with world-class facilities with a wide range of process
equipment fully compliant with WHO GMP standards. SMS has over the years
developed tremendous manufacturing facilities to suit its style of operations
and to meet the requirements of USFDA and other regulatory markets. A total of
7 facilities are being presently operated.
Research and
development: R&D at SMS
Pharmaceuticals drives the company’s competitive edge, reflected in the
introduction of pioneering products and processes with a superior price-value
proposition. Strong R&D has been at the core of company’s growth since its
inception. SMS Pharmaceuticals started R&D activities with 4 doctorate
scientists supported by 20 senior chemists in a 10000 Sq.ft area. Company
recently expanded its R&D facilities by creating a state of art corporate
research center with infrastructure and expertise to carry out all the
activities from product conception to the development, scale up, stability
studies culminating in preparation of the DMF.
Company’s research
team now comprises of about 100 scientists with expertise in process research,
analytical research and scale up. A dedicated project management team handles
costing, administration, purchase, and project monitoring. R&D capabilities
of the company span across reaction technologies, organic compound categories,
and novel catalytic systems. This center is capable of delivering top notch
contract research modules to international clientele
Future plan: SMS is building an ultra-modern API manufacturing facility near
Vizag on the eastern coast of India to cater to in house production needs and
also for the emerging contract manufacturing business.
2. Recent Developments: (9th May 2015)
i) USFDA Audit at Manufacturing Facility (Unit-VII)
– Apr 2015
SMS Pharmaceuticals Ltd has
informed that USFDA inspection to the Unit-VII located at Kandivalasa Village,
Pusapatirega Mandal, Vizianagaram District in the state of Andhra Pradesh had
successfully completed. Successful GMP Surveillance inspection by USFDA of company’s
UNIT-VII facility will help company to drive its revenue growth through exports.
ii) SMS Pharmaceuticals settles legal dispute with Natco Pharma – Nov
2014
SMS Pharmaceuticals announced that the legal disputes between the
Company and Natco Pharma have been amicably settled. Out of the settlement, the
Company has received a sum of Rs.15.07 crore from Natco Pharma apart from the
balance principal amount receivable from the respective courts
iii) SMS Pharmaceuticals to invest about Rs 1000 crore in Andhra Pradesh – Sept
2014
Company
is planning to gradually scale down production at its units in Telangana. On
the other hand, the company has decided to invest Rs 950-1,000 crore in Andhra
Pradesh over the next four-five years. The company has decided to reduce
production in its five pharma units in Telangana due to administrative
problems. Last year, these units generated a turnover of Rs 300 crore.
The company has two facilities in AP - in
Vizianagaram and Srikakulam districts. It plans to invest Rs 400 crore in
Vizianagaram unit expansion and Rs 350 crore in the Srikakulam unit. Company
has taken 40 acres at the Pharma City in Vizag where it would set up an API
manufacturing plant with an investment of Rs 200 crore. As per company
officials, this would be ready in two-and-a-half to three years.
As informed by Ramesh
Babu, Chairman of the Company, of the total required investment, promoters
would contribute 35 per cent while the remaining would be from financial
institutions. The company achieved a turnover of Rs 525 crore with about Rs 25
crore net profit during the last fiscal. Company is planning to reach turnover
of 2,000 crore by 2019 in Andhra Pradesh.
3. Financial Performance:
SMS Pharmaceuticals standalone net profit rises 37.74% in the Dec
2014 quarter
Net profit of SMS Pharmaceuticals rose 37.74% to Rs 115.7 million
in the quarter ended December 2014 as against Rs 84.0 million during the
previous quarter ended December 2013. Sales rose 8.46% to Rs 1363.8 million in
the quarter ended December 2014 as against Rs 1257.4 million during the
previous quarter ended December 2013.
SMS Pharmaceuticals standalone net profit rises 0.78% in the Sept
2014 quarter
Net profit of SMS Pharmaceuticals rose 0.78% to
Rs 51.5 million in the quarter ended September 2014 as against Rs 51.1 million
during the previous quarter ended September 2013. Sales rose 4.14% to Rs 1261.8
million in the quarter ended September 2014 as against Rs 1211.6 million during
the previous quarter ended September 2013.
4. Key Concerns & Risks:
i) The Company’s
business activity is a single primary business segment of Bulk Drugs. In view
of higher capital investment, bulk drug manufacturers typically generate lower
return on capital employed as compared to formulation companies owing to thin
margins and high competition. Bulk drug business being completely driven by
scale of operations which results in high product concentration and pricing
related vulnerabilities
ii) SMS
Pharmaceutical is in a competitive market and the challenges are both from
Indian manufacturers who have similar production facilities, as well as those
in China. Competing pharmaceutical companies have several similar
bio-equivalent products in the same markets manufactured at facilities that
have been approved by regulatory authorities. All of them stay focused on the
same markets with the result that price elasticity is tested and margins get
eroded.
iii) Pharmaceutical
industry sector is facing global competition and most effected by a high
attrition rate in India. Since this industry needs trained manpower who has the
requisite experience to meet the compliances with statutory requirements, good
manufacturing practices, good laboratory practices, QA and QC personnel along
with research personnel, high attrition can lead to impact on performance.
5. Saral Gyan Recommendation: (9th May 2015)
i) SMS Pharmaceuticals is developing a broad portfolio of DMFs/ANDAs
through non-infringing processes and intellectual properties for developing its
products in regulated markets. The Company is managing cost efficiency in manufacturing
environment approved by USFDA / European Regulatory Authorities. SMS Pharma has
strong presence across the pharmaceutical chain, manufacturing and marketing
active pharma ingredients (APIs/Bulk Drugs). The market segment for the
products of SMS demonstrates growth tends every year with raising volume and
value.
ii) SMS Pharmaceuticals has robust product portfolio spread over major
product areas encompassing Gastroenterological, Anti-Retroviral, Anti-Migraine,
Anti-Fungal, Anti-Hypertensive and other products. SMS Pharmaceuticals is the
largest manufacturer of Anti-Ulcer products in the world, having forged tie ups
with MNCs in Anti-Retroviral, Anti Migraine segments; significant revenue
potential is envisaged apart from consolidation of existing product revenues
where company is market leader.
iii) SMS Pharmaceuticals has set ambitious goal of achieving revenue of
2000 crores by 2019 (3.5X of current annual sales). The Company has world class
manufacturing facilities and an enviable basket of approved markets and strong
relationship built with some of the best names in the pharma industry.
Company’s focus will be on expanding the markets and increasing its product
portfolio, by implementing these strategies, company aims to increase its
revenues, EBITDA and return on investment higher than the industry average.
iv) Company’s EBITDA and PAT margins are expected to
improve going forward. During last 3 years, company has achieved revenue and
profit CAGR of 31.6% and 43% with continuous improvement in margins.
v) Company sold one of its facility to Mylan Pharma in FY13 for 173
crores and used this fund to reduce debt, upgrading other facilities and
working capital requirement.
vi) Company has planned
to invest Rs 950 - 1,000 crore in Andhra Pradesh over the next four - five
years. Company is planning to gradually scale down production at its units in
Telangana and increase in Andhra Pradesh which will yield better returns on
investment for the company considering new
life sciences policy of AP government under
which state will provide subsidies in power, water and also provide land for
setting up of new life science industries in the state.
vii) Management has paid
dividend to shareholders since company got listed in 2007. However, as company
incurred losses in 2012, dividend was not paid out for FY12. Considering
ambitious growth plan of the company with expansion of its manufacturing
facilities, we expect dividend payout to remain low with dividend yield below
1% during next couple of years
viii) As per our estimates,
SMS Pharmaceuticals Ltd can deliver bottom line of 370 million for full
financial year 2015, annualized EPS of Rs. 43.7 with forward P/E ratio of 12.2X
for FY15, valuation looks discounted compared to peers for a company which is
going through expansion and target to treble its revenue with improvement in operating
margins in next 3 to 4 years
ix) On equity of Rs. 84.65 million, the estimated
annualized EPS for FY 14-15 works out to Rs. 43.7 and the Book Value per share
is Rs. 291. At current market price of Rs. 534.40, stock price to book value is
1.8
Considering company’s plan to work towards optimizing the
capacities of its existing manufacturing facilities, adding additional
capacities to drive revenue growth, and improving operating margins by offering
broad product portfolio, Saral Gyan
team recommends “Buy” on SMS
Pharmaceuticals Ltd at price of Rs. 534.40 for
target of Rs. 1100 over a period of 18 to 24 months.
Buying Strategy:
- 70% at
current market price of 534.40
- 30% at price range of 470-500 (in case of correction in stock price in near term)
Portfolio
Allocation: 3% of your equity portfolio
To Read / Download Saral Gyan Hidden Gem - April'15 Research Report - Click Here
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To Read / Download Saral Gyan Hidden Gem - April'15 Research Report - Click Here
If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks.
The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.
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