We are pleased to inform you that our Hidden Gem stock of November 2015 - Coral Laboratories Ltd (BSE Code: 524506) which was released on 06th Dec'15 is giving as on date returns of 105% to our Hidden Gems members. Our team suggested Buy on Coral Labs at price of Rs. 552.50 on 06 December 2015 with a target price of Rs. 1100. Stock has already achieved its target price recently and closed at Rs. 1134.20 today on BSE giving as on date returns of 105% to our Hidden Gems members in period of 1 year and 6 months.
In Dec'16 quarter, net profit of Coral Laboratories rose 62.38% to Rs 5.05 crore against Rs 3.11 crore during the previous quarter ended December 2015. Sales rose 25.28% to Rs 22.65 crore in the quarter ended December 2016 as against Rs 18.08 crore during the previous quarter ended December 2015
During last 15 years, promoters have increased their holding in the company from a meagre 15.05% in 2001 to the respectable 71.57% in 2015. Promoters buying own company's share from the open market is a signal of highest commitment and confidence in the company's business. From above, it is evident that promoters of the company have steadily made purchases via open markets to increase their stake in the company.
In FY 14-15, company export sales grew by 23% compared to last financial year and contributed 50.9% of total revenue compared to 49.2% in FY14. As per our estimates, company export contribution will increase to 55% over next 2 years.
i) Coral Lab is present in the generics segment of pharmaceutical markets in different countries. Presence of many players in the industry and offerings of cheap generic products from unorganized sector is always a risk for the company.
ii) Coral Lab exports its Generic drugs to various countries like Sri Lanka, Myanmar, Cambodia, Vietnam, Jordan, the Philippines, Afghanistan, Kenya, Nigeria, Malawi, Chile, Cuba, Barbados, Jamaica, Ivory Coast, Costa Rica, Lesotho, Papua New Guinea, Malawi, and Hong Kong , the governments of different countries apply periodic price cuts on the pharmaceutical products so as to keep the healthcare cost under control which can impact the margins of the company.
iii) Stringent regulations and quality standards are prescribed by the regulatory authorities across the globe for the pharmaceutical products and their manufacturing and supply chain processes in order to protect the interests of the patients. Any deviation from the prescribed regulations or any variation in the quality from the prescribed standards may lead to punitive actions by the regulatory authorities.
i) Coral Labs is having more than 2 decades of experience and offers whole array of products which are decent on margins. As company exports to semi / less regulated markets and do not supply to the US, company does not have risk associated with USFDA stringent norms and regulations. Company has shown consistency in revenue growth with strong margins in recent years. With increased focus of management on exports in semi regulated markets, we expect net sales and PAT of the company to grow at CAGR of 20% and 26% respectively during next 2 years.
ii) The governments of various countries have been taking several cost effective measures in order to bring down healthcare expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will benefit Indian pharma companies. Coral Labs is among the many companies with a large scale manufacturing portfolio and expertise to offer generic drugs in different therapeutic segments.
iii) Company has 3 state of the art plants with CGMP & FDA approvals. Company has demonstrated healthy domestic growth as well in the past. In India, company is doing well in the western and southern part. Company has complete portfolio of injectable, syrups, cough syrups and tablets in antibacterial, antibiotics segment and sells its products over the counter and on prescriptions. Company manufacture around 400 generic medicines on a significant scale in about 15 dosage forms.
v) Promoters have increased their stake in the company by 5.75% in last 3 years which gives further confidence in terms of company’s future growth prospects. As of Sept’15, promoter’s shareholding is 71.57% without pledging any shares. FII and DII shareholding in the company is nil.
vi) Management has rewarded shareholders by paying consistent dividend since last 13 years. For last financial year, company has paid dividend of Rs. 2.50 per share and dividend yield at current market price is 0.45%. With expected increase in revenue and profitability in coming years, we believe company dividend payout will increase going forward.
vii) As per our estimates, Coral Labs can deliver PAT of 17 crores for full financial year 2016-17, annualized EPS of Rs 47.6 with forward P/E ratio of 11.6X for FY16-17. Company’s valuation looks attractive compared to other pharmaceutical companies operating in the same segment. Moreover, Coral Labs can continue to deliver consistent revenue growth with strong margins during next 2 years.
viii) On equity of Rs. 3.57 crore, the estimated annualized EPS for FY 16-17 works out to Rs. 47.6 and the Book Value per share is Rs. 181.2. At current market price of Rs. 552.50, stock price to book value is 3.05.
- 70% at current market price of 552.50
- 30% at price range of 450 - 470 (in case of correction in stock price in near term)
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Team - Saral Gyan