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Wednesday, May 10, 2017

Coral Laboratories Target Achieved - ROI @ 105% in 1.5 Year

Dear Reader,

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

Below is the summary of Coral Laboratories Ltd shared by our team under Hidden Gem stock of Nov'15 released on 06th Dec 2015.

Note: This report is shared only for the purpose of information and not an investment advice. Kindly carry out your own due diligence in case of investment in Coral Laboratories.

1. Company Background:

Coral Laboratories Limited was founded in 1994 and is engaged in pharmaceutical business in India and internationally. Coral Laboratories Ltd (Coral Labs) is equipped with total three ultra-modern strategically spread manufacturing units located in Daman, Dehradun and Vasai, which are ideal for manufacture of around 400 generic medicines on a significant scale in about 15 dosage forms. Coral Lab is among the many companies with a large scale manufacturing portfolio and expertise. All 3 state of the art manufacturing plants are with CGMP & FDA approvals.

The company’s product portfolio is composed of bacteria, biotic, inflammatory and skin condition medicines, as well as protein supplements. It primarily focuses on inflammatory, bacterial, biotic, protein deficiencies, and skin conditions. The company principally offers Zest syrups/caps/drops, Moxbro caps/tabs/dry syrups, and dedoxy/doxycycline capsules.

Company produces a variety of drugs like antibiotics, vitamin supplements, protein supplements, iron supplements, antacids, antiulcer medications, antispasmodics, analgesics, antipyretics, antiasthmatics, anthelmentics, antidiabetics, antiamoebic, cough suppressants, expectorant, anticold, cardiac medicines, special cardiac products, herbal medicines, antibacterials, anti-eczematic and anti-fungal, and appetizers.

The company also offers oral antiseptic, antimalarial drugs, muscle relaxants, nasal sprays, eye drops, ear drops, eye/ear drops, anti-allergic, calcium preparations, mouthwashes, anti-emetic, antipsychotic drugs, and injectables. The company offers its products in various dosage forms, such as tablets, drops, capsules, dry syrups, liquid orals, inhalers, sprays, and injectables.

The company exports its products to 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.

Mr. Navin B. Doshi has been overall responsible for the operations and smooth functioning of business of the company successfully and has been instrumental in achieving substantial growth for the company as Director. Mr. Navin B. Doshi, founder of Coral Labs, has over three decades of marketing experience in the pharmaceuticals industry. 

Coral Labs has a wide range of drugs to offer from various segments, company offers almost 450 SKUs as Non-Sterile products, 150 as Sterile products and 55 as OTC & Nutraceutical products.

2. Recent Developments: (as on 06th Dec'15)

i) Increasing Focus on Exports to drive Revenue growth and Profitability

Coral Labs is making continuous efforts to enhance its exports in order to drive revenue growth and profitability. The Company’s export has increased to Rs.31.59 crores in FY15 from previous year of Rs. 25.59 crores registering growth of 23%. In FY15, company’s exports contributed 50.9% of total revenue compared to 49.2% in FY14. With management focus on driving exports in semi regulated markets, we expect revenue from exports will increase significantly during next 2 to 3 years.

According to India Ratings, a Fitch company, the Indian pharmaceutical industry is estimated to grow at 20 per cent compound annual growth rate (CAGR) over the next five years. Presently the market size of the pharmaceutical industry in India stands at US$ 20 billion. Branded generics dominate the pharmaceuticals market, constituting nearly 70 to 80 percent of the market. India is the largest provider of generic drugs globally with the Indian generics accounting for 20 per cent of global exports in terms of volume.

The domestic generic drug market is expected to cross $27.9 billion from the current level of $13.1 billion registering compound annual growth rate (CAGR) of about 16.3 per cent particularly due to approval accorded by USFDA makers and 21 drugs patent losing patent by 2019, according to a joint study by the Associated Chambers of Commerce and Industry of India (Assocham) and RNCOS. The major export markets for the country’s pharmaceutical products are Americas, Europe, China, Japan, Africa, and others. The U.S. is single largest export destination. It accounts for nearly 28 per cent of Indian pharmaceutical exports, followed by the European Union (18 per cent) and Africa (17 per cent). The pharma exports to the U.S. market are high due to the large number of approvals from the USFDA.

According to a study on ‘Generic Medicines in India - Promulgating Growth & Access , Generics would account for 85 per cent share in the domestic pharma market by 2020, fuelled by cheap labour, patent cliff of blockbuster drugs and prevalence of lifestyle diseases. Generic drugs account for 75 per cent of the domestic pharmaceutical market by value. Drugs for cholesterol control, pain management, anti-coagulant, respiratory, liver disorders, depression and lipid regulators are highly prevalent in the global market.

As per CARE Ratings, the drug patent expiry in the USA will create new opportunity for Indian pharmaceutical industry in the coming years and the pharma industry will gain a larger foothold in the world's generic market. In the long term, semi-regulated markets like Latin America, Africa and Asia may offer the next growth avenues for Indian pharma companies as these markets have high demand for drugs and relatively less stringent regulatory compliance resulting in lower cost of servicing these markets.

ii) Increase in Share Holding by Promoters

During last 5 years, promoters have increase their stake in the company by 10.29%, from 61.28% in Mar’11 to 71.53% in Sep’15.
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. Promoters buying shares from open market adds comfort in terms of associated downside risk in stock price in case of market correction.

At the end of Sep’ 15, promoter shareholding stands at 71.57%. FII and DII investment is nil in the company.

Moreover, there has been no equity dilution for the last 15 years, which is very impressive. Company has not made any fresh issuances of equity capital and the equity capital of Coral Labs is same at 3.57 crores since 2001.

3. Financial Performance:

Coral Laboratories standalone net profit rises 14.06% in the September 2015 quarter

Net profit of Coral Laboratories rose 14.06% to Rs 2.84 crore in the quarter ended September 2015 as against Rs 2.49 crore during the previous quarter ended September 2014. Sales rose 24.28% to Rs 18.07 crore in the quarter ended September 2015 as against Rs 14.54 crore during the previous quarter ended September 2014

Coral Laboratories standalone net profit rises 84.67% in the June 2015 quarter

Coral Labs standalone net profit rises 84.67% in the June 2015 quarter to Rs 2.77 crore in the quarter ended June 2015 as against Rs 1.5 crore during the previous quarter ended June 2014. Sales rose 21.82% to Rs 13.96 crore in the quarter ended June 2015 as against Rs 11.46 crore during the previous quarter ended June 2014.
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.

Company has delivered steady growth over last couple of years with continuous improvement in margins. With management increased thrust on exports, we expect company will continue to achieve robust top line and bottom line growth going forward.

4. Peer Group Comparison: (as on 06 Dec'15)

5. Key Concerns & Risks:

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.

6. Saral Gyan Recommendation: (as on 06 Dec'15)

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.

iv) Company’s ROCE and PAT margins have seen continuous improvement over last 5 years and expected to further improve going forward considering robust revenue growth from exports as well as domestic markets. We believe Coral Labs is getting into a trajectory where business growth would be even faster. Company has achieved revenue CAGR of 11.8% and profit CAGR of 15.43% during last 5 years. Moreover, company is virtually debt free.
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.

Considering company’s steady growth with strong margins in past, increased thrust of management on exports in semi-regulated markets and strong earning visibility with robust business prospects, Saral Gyan team recommends “Buy” on Coral Laboratories Ltd at current market price of Rs. 552.50 for target of Rs. 1100 over a period of 12 to 24 months.

Buying Strategy:
  • 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)
Portfolio Allocation: 3% of your equity portfolio.

To Read / Download Saral Gyan Hidden Gem - Nov'15 Research Report - Click Here

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Regards, 
Team - Saral Gyan