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02 Dec

Investing Rs 3,500mn for making API, KSM and Intermediates – Aarti Industries

Update on the Indian Equity Market:

On Thursday, Indian benchmarks ended in the green amid weekly F&O expiry, weak global cues, and omicron fears. NIFTY50 ended 218points higher at 17,402 (+1.4%). IT (+2.1%), METAL (+1.6%), and MEDIA (+1.6%) were the top sectoral gainers. There were no sectoral losers for the day. Among the NIFTY50 stocks, ADANIPORTS (+4.5%), POWERGRID (+3.8%), and HDFC (+3.8%) were the top gainers while CIPLA (-0.8%), ICICIBANK (-0.6%), and AXISBANK (-0.5%) were the only losers.

Excerpts of an interview with Mr. Rashesh Gogri, Vice Chairman and MD, Aarti Industries (AARTIIND) with CNBC-TV18 on 1st December 2021:

  • AARTIIND has qualified for Pharma companies PLI scheme under Group C, which will get a PLI (Production linked incentive) of Rs 17.5bn over 6 years and a minimum investment of Rs 500mn.
  • AARTIIND has qualified under the manufacturing of API, KSM and Drug Intermediates (Category II). It will be investing Rs 3500mn in a new large complex for manufacturing these products. Capex will start in FY22.
  • The funding for the Capex will be a mix of debt and equity. Most of the funding for Capex will be through the QIP proceeds and internal accruals.
  • AARTIIND had announced plans to split the company-into pharma and specialty chemical companies.
  • It expects the pharma business to report 25% topline growth in FY22. The company expects the pharma business to maintain 20-25% topline growth going forward as well.
  • 3QFY22 has seen commodity price volatility. The commodity prices have peaked out now and going down. This volatility impacts the company’s ability to pass on the raw material price inflation.
  • High levels of commodity prices did not remain for more than 1 quarter, so there could be some margin pressure for overall industry.
  • The shutdown in China on certain products, and policy issues has benefitted AARTIIND. Some of their products are doing well.
  • On demand trends, he said that in the specialty chemical segment, agro chemicals and polymers are doing well. Pent up demand was missing in polymer sector. Now the company is witnessing good demand in both these sectors.
  • Consumer centric sectors like dyes, intermediates are not doing well.
  • As the company operates on a cost plus model, it passes on the cost increase/reduction to customers. It tries to maintain its margin on a per kg basis.

Asset Multiplier Comments

  • In speciality chemical segment, pass through of raw materials hike for domestic customers is on a monthly basis while for exports on a quarterly basis. In Pharma, the increased raw material costs will take time to be passed on to end customers which may keep margins under pressure for the next one or two quarters. This may limit the share price increase/upside in the 2HFY22.
  • Two of the company’s long term contracts are expected to be commissioned by 3QFY22, and 1QFY23 respectively. This will help in increasing the topline, and is in-line with management’s revenue guidance of Rs 90,000 mn by FY24E.
  • We expect the company to benefit from its operating leverage in the quarters to come, which will help it in sustaining its operating margins.

Consensus Estimate (Source: market screener and investing.com websites) 

  • The closing price of Aarti Industries was ₹ 977/- as of 02-December-21. It traded at 39x/ 35x/ 29x the consensus EPS estimate of ₹ 25/ 28/ 34 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 964/- implies a PE multiple of 28x on FY24E EPS of ₹ 34/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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24 Aug

Demerger will help maintain focus and direction for both segments – Aarti industries

Update on the Indian Equity Market:

On Tuesday, Indian stocks closed in the green aided by positive global cues, and positive U.S. vaccination news. Nifty 50 ended at 16,625 (+0.8%) led higher by BAJAJFINSV (+7.8%), HINDALCO (+3.9%), and ADANIPORTS (+3.8%). The top laggards were BRITANNIA (-1.4%), NESTLEIND (-1.4%), and ASIANPAINT (-1.1%). Among the sectoral indices, METAL (+2.9%), MEDIA (+2.0%), and PSU BANK (+1.8%) led the gainers. Typically considered defensives, FMCG (-0.7%), and IT (-0.2%) led the laggards.

The Board of Aarti Industries recently approved the demerger of its pharma business.  Mr. Rajendra Gogri, MD, Aarti Industries (AARTIIND) discussed the rationale behind this move with Economic Times on 24th August 2021:

  • In the last few years, the pharma business revenues have almost doubled and EBIT has grown four times, with EBIT margins around 20 percent plus. The company foresees a significant opportunity in both, the pharma and specialty chemicals businesses. It has been decided to have a separate company so that there can be a separate focus and strategic direction for both the segments.
  • The process for demerger is expected to be completed in the next 9-15 months depending on the Covid situation.
  • Earlier AARTIIND had announced a Rs 50bn capex plan, out of which Rs7.5 bn will now be spent on the pharma division, and the balance on chemicals.
  • Both the segments have separate manufacturing facilities as well as R&D centres. The customer base also is separate. There is virtually no overlap in manufacturing as well as R&D in the market between both the segments.
  • In pharma, they are looking to add more than 50 products in the next 5-6 years. For pharma intermediates and API, a new greenfield expansion at Atali, Gujarat is being set up.
  • With a strong customer base across the world, AARTIIND expects a sizeable revenue growth over the next few years. In the next five years, the Company is looking at top line 2.5 to 3.5 times and three to four times at EBIT level for both the segments.
  • AARTIIND is totally backward integrated, especially in the Chemicals segment. Benzene is a key raw material which is domestically available and the Company does not foresee any raw material shortages but container freight is an issue. Usually, AARTIIND is able to pass on the freight increase to the customers but the availability of containers is impacting exports.

Asset Multiplier Comments

  • China had imposed penalties on chemical companies causing pollution and environmental damage. As a result, many chemical companies’ plants have been shut or relocated outside China. Additionally, with Covid-19 imposed restrictions, supply chain challenges have increased. Chemical companies in India have emerged as a beneficiary due to these challenges under the China+1 strategy.
  • AARTIIND is able to pass on the freight cost hikes to domestic customers almost immediately. There is a quarter’s lag while passing on the freight hikes to overseas customers. As the freight cost is eventually passed fully to the customers, the Company is able to maintain and improve its bottom line.

Consensus Estimate: (Source: market screener website)

  • The closing price of AARTIING was ₹ 920/- as on 24-August-2021. It traded at 43x/ 34x/ 33x the consensus earnings estimate of ₹ 21.3/ 26.7/ 28.0 for FY22E/ 23E/ 24E.
  • The consensus target price of ₹ 927/- implies a PE multiple of 33x on FY24E EPS of ₹ 28.0/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Aarti Ind, Chemicals , , 0 Comments Read more...
20 May

A big opportunity is beginning to unlock for us in the US: Cipla

Update on the Indian Equity Market:

On Tuesday, NIFTY ended up 56 pts (+0.63%) at 8879 level. Among the sectoral indices, MEDIA (2.0%), AUTO (1.03%) and IT (0.99%) were among the top gainers while PSU BANK (-2.59%), REALTY (-0.7%) and PVT BANK (-0.49%) were the losers.
BHARTIARTL (10.81%), ADANIPORTS (+9.0%) and ONGC (+5.69%) were the top gainers. UPL (-9.78%), VEDL (-2.65%) and RELAINCE (-2.2%) were the top losers.

A big opportunity is beginning to unlock for us in the US: Cipla

Edited excerpts of an interview with Mr. Umang Vohra, Managing Director (MD) & Global Chief Executive Officer (CEO), Cipla:

Our ambition is to dominate the inhaler space across all markets and offer solutions to patients, says Umang Vohra, MD & Global CEO, Cipla.

• His comments on Profit Margins: Company has guided at the beginning of the year and that is standing up at close to 19% range. The fourth quarter is usually off-season for the company and therefore historically, have always been subdued. There are some of the specific one-offs:
o Company was not able to invoice about Rs 2000 odd mn of sales on account of the last week of Covid closure and that is pretty high margin sales. The impact would have been directly on profitability.
o In comparison to the base in the previous year where there was a huge amount of cinacalcet sales, that is not the right comparison for 4QFY20 and for 1QFY21E too.
o Cinacalcet itself had some charges in 4QFY20 as exclusivity has ended.
o In the last six to nine months, a fair amount of cost and effort on the remediation was required for Goa which is now completely in numbers. The remediation effort and work for Goa that is required will finish approximately by June/July, 2020. The charges have largely been taken in 3QFY20.

• His views on sale pick up in the year to come – A pretty solid year is expected on account of Sensipar, Albuterol approval and also esomeprazole granules approval received in the last week of 4QFY20.
• When asked about the US market he informed that US is a 55 mn unit market and with the recent shortage of Albuterol in the US, it moved to a 50-65 mn unit market. On the branded side, it is close to 4 bn in sales across the three brands of Albuterol. It is a very significant and sizable market for Cipla to play in.
• When asked about the main growth drivers going ahead he commented that respiratory franchise might be boosted by another complex inhaler filing. The inhaler opportunity can add to position Cipla as the lung leader. Already, Cipla is number two in terms of both Metered-dose inhaler (MDI) and Dry-powder inhaler (DPI) sold worldwide, just with the number of devices that Cipla sells worldwide in both these categories. Company’s ambition is to dominate this space across all markets and offer solutions to patients which they are not getting today.
• Cipla had albuterol approved that is a great validation for MDI. The trial just finished and a filing is imminent in the next one or two days for the Advair product which is a product that many companies have struggled to get a first part clinical trial approval and Cipla have just passed that.
• Cipla also filed another product which cannot be disclose right now due to IP. It has also filed another product which is again another inhaler in 4QFY20 and have a partnered asset which is another very large category where nobody else is working. That product is at the clinical trials stage with their partner.
• If we combine the above four and the rest of the products that Cipla is likely to do, a big opportunity is beginning to unlock for Cipla in the US and carries a fairly significant value for the company in the long term.
• His views on COVID-19, India and other emerging market business and the process for other prescription drugs: In the first two, three weeks of the lockdown, there was a serious dip because everyone was dealing with the lockdown initially. In week three and four, activity was resumed by doctors, who started interacting virtually with their patients. In the last week, the green and orange zones are opening up and activity is resuming in these areas. Of course, there are sections where the doctors are not meeting as much. For example, dentists and dermatologists because of the risk of this infection being real, are perhaps not meeting as much as interventionists, chest physicians etc. So, it is gradually opening up. As the red zones begin to open up, resumption in activity can be seen depending on the zone.

Consensus Estimate: (Source: market screener website)

• The closing price of Cipla Ltd. was ₹ 594/- as of 19-May-20. It traded at 25.4x/ 21.2x the consensus EPS estimate of ₹ 23.7/28.4 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 623/- implies a PE multiple of 22x on FY22E EPS of ₹ 28.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Cipla, Pharmaceuticals , , 0 Comments Read more...
30 Jan

Looking to raise equity & cash through restructuring – Habil Khorakiwala, Wockhardt

Update on the Indian Equity Market:

On Wednesday, Nifty ended 0.6% higher at 12,130. Among the sectoral indices, Nifty FMCG (+1.3%), Nifty Metal (+0.9%) and Nifty Auto (+0.8%) were the top gainers. Nifty Pharma ended the day marginally in the red. Tata Motors (+6.8%), Bajaj Finance (+5.1%) and Infratel (+3.4%) were the top gaining stocks while Eicher Motors (-4.5%), Yes Bank (-1.4%) and Dr Reddy (-1.4%) were the top losers.

Looking to raise equity & cash through restructuring – Habil Khorakiwala, Wockhardt

Excerpts from an interview with Habil Khorakiwala, Founder, Chairman and Group CEO, Wockhardt:

  • The company is looking to raise some equity and cash through a restructuring of the organization. There are alternatives on which the company is working.
  • The restructuring process would likely be completed in the next month.
  • The Q3 financial results of the company were recently released, and sales are up 9-10 percent compared to the previous quarter. Expense management over the last 9-12 months has resulted in significant operating cost reduction.
  • The 3Q margins (17.7%) are among the highest in recent times and a result of product mix. Despite spending heavily on both R&D and capex, there is a significant increase in EBITDA without R&D.
  • Addressing the liquidity issue, he said that last year the company has repaid ₹ 780 crore of its debt. The net debt increase period has been supported by the promoter. The new cash is to sustain drug discovery research programme and go into growth momentum in 2021.
  • They have completed most of the remediation measures at their Waluj facility and are in communication with the US FDA and hopeful of being on track as far as the US business is concerned.
  • There are three components to their India business: branded, generic, and active pharmaceutical ingredient (API) business. The branded business is down by less than a single digit. Though mostly discontinued, the generic business is showing a decline. The API business in India is down but up in the international markets.
  • Globally, their focus is on three-four areas. Their pharma business is important worldwide, including India. The research programme with the new chemical entity (NCE) is very important for the therapy area antibiotics. Third, the biosimilars are very important since new FDA guidelines has them thinking about entering the US market biosimilars segment. Last, due to technology advantage in formulation, the worldwide diabetic portfolio is a favorite.
  • Strategy for the antibiotic drug is marketing themselves in the US and India and looking for partners in the rest of the world.
  • Two of their molecules (EMROK (IV) and EMROK 0 (Oral)) have been approved by the Drug Controller General of India, which will be in the Indian market in the next three-four months. Another molecule, 5222 is entering phase-III clinical trial in the next few months.

Consensus Estimate:

The closing price of Wockhardt was ₹ 349 as of 29-January-20. The consensus estimate for EPS of Wockhardt is not available. Wockhardt reported a loss of ₹ 10.6 per share for FY19 and ₹ 13.8 for 9 months ending December 19 respectively.

 

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