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BUY
Target Price `100
CMP `40
Index Details
Sensex
25,999
Nifty
7,739
BSE 100
7,780
Industry
Pharma
Scrip Details
270.2
BVPS (`)
40.5
6.8
Av Vol (Lacs)
7.3
52 Week H/L
66/30
1.7
FVPS (`)
10.0
Shareholding Pattern
Shareholders
Promoters
36.1
DIIs
0.1
FIIs
0.0
Public
63.6
Total
100.0
PAT
EPS
(`)
EPS Growth
(%)
RONW
(%)
ROCE
(%)
P/E
(x)
EV/EBITDA
(x)
60.7
92.0
140.1
173.9
9.9
13.5
20.6
25.5
5.9
51.6
52.3
24.1
21.4
24.5
27.2
25.2
16.2
17.2
19.5
19.9
4.0
3.0
1.9
1.6
4.6
4.1
3.5
2.9
Thursday 16
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
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October, 2014
STOCK POINTER
Company Background
Promoted by Dr. Arvind Shah, Arvind Remedies Ltd (ARL) was incorporated in 1988
and its primarily business involves the manufacture of Branded and Generic
formulation products.
Arvind Remedies Group Structure
Subsidiaries
Plant Locations
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Thursday 16
October, 2014
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Thursday 16
October, 2014
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
es
120
2500
(%)
Rs Crore
2096
100
1678
2000
1301
80
963
1500
706
60
1000
40
500
20
0
FY13
FY14
Unit 1
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FY15E
Unit 2
Unit 3
FY16E
Unit 4
FY17E
FY13
FY14
Branded Retail
Generic Formulations
FY15E
FY16E
Branded Institutional
CRAMS
FY17E
Branded Exports
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Thursday 16
October, 2014
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
2.5
1000
2.0
800
1.5
600
1.0
400
200
0.5
0.0
Medical Representatives
Medical Representatives Efficiency (RHS)
Source: Arvind Remedies, Ventura Research
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October, 2014
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Segment Contribution
Q1FY15
FY17E
7%
13%
34%
38%
25%
28%
2%
24%
28%
2%
Branded Retail
Branded Institutional
Branded Exports
Generic
CRAMS
Rs.Crore
200
350
180
300
160
Rs. Crore
140
250
120
200
100
150
80
100
60
40
50
20
0
FY13
Branded Retail
Generic
FY14
FY15E
Branded Institutional
CRAMS
FY16E
FY17E
0
FY13
FY14
FY15E
FY16E
FY17E
Branded Exports
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Thursday 16
October, 2014
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Chemical drugs
The terms are often used to describe the large A pharmaceutical drug is any chemical
substance formulated as single active
number of primary and secondary metabolic
compounds found in plants, which are used to ingredient used in the medical diagnosis,
cure, treatment, or prevention of disease
prepare drugs
Common names of Phytochemicals are
Antioxidants, Flavonoids, Phytoneutrients,
Flavones, isoflavones etc.
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Thursday 16
October, 2014
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Stage
Arthiritis
Associations
Phase 2 completed
Phase 2 completed
Phase 1 completed
Depression
Neuro-Degeneration Disorder
Coronary Heart Disease
Phase 2 completed
Type II Diabetic
Phase 2 completed
Obesity
Pre-clinical completed
Viral Diseases
Pre-clinical completed
Key Risks
High Leverage and Finance Cost
ARL has a debt of ` 591.2 crore (FY14) with an average cost of borrowing of 13%.
Though, ARL has been thinning down its long term debt by `40-45 crore every year,
we believe it will have to raise short term debt in order to fulfill its working capital
requirements, considering the expansion plan and new product launches. The
Companys debt repayment depends highly upon new product launches and its foray
into new markets.
D/E, Debt/EBITDA and Interest Coverage Ratio
6.0
(x)
5.0
4.0
3.0
2.0
1.0
0.0
FY11
FY12
Debt/EBITDA
FY13
FY14
FY15E
FY16E
FY17E
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Thursday 16
October, 2014
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We draw comfort from the fact that the core business which is expected to record `
372 crore in EBITDA by FY17 will help in enhancing the Net Worth by 143% and
lower the Debt to EBITDA from 3.3x in FY14 to 1.9x by FY17. Additionally, this will
augment the interest coverage ratio from 2.1x in FY14 to a comfortable 3.7x by
FY17. However, if in case the new product launches are not successful in the
market then it might be a downside risk to the companys revenues and profitability.
Success of drug product development and also launches of new drug products carry
inherent risk. If the new drug product fails in drug product development stage or not
accepted by the market, then it might adversely impact the revenues and profitability
of ARL.
Financial Performance
Backed by two new product launches (Metnil for Diabetic Therapeutic Segment and
Arvistat 10 for Cardiovascular Therapeutic Segment) in the Branded Retail segment,
ARLs standalone revenues witnessed a robust growth of 41% YoY to ` 258.8 crore
in Q1FY15. In the same period, its EBITDA margins registered a growth of 267 bps
YoY and stood at 24.6% as against 21.9%. The PAT also witnessed a robust growth
of 58% YoY to ` 26.1 crore.
Quarterly Financial Performance (` in crore)
Particulars
Net Sales
Growth%
Total expenditure
EBITDA
Margin%
Depreciation
EBIT (Ex OI)
Other Income
EBIT
Margin%
Interest
Exceptional Items
PBT
Margin%
Provision for Tax
PAT
Margin%
Q1FY14
Q1FY15
FY14
FY13
184.0
258.8
41%
195.2
63.6
25%
6.5
57.1
0.0
57.1
22%
24.4
0.0
32.7
13%
6.6
26.1
10%
963.2
36%
781.3
181.9
19%
14.0
167.9
0.0
167.9
17%
78.5
0.0
89.4
9%
28.7
60.7
6%
706.1
143.7
40.3
22%
3.3
37.0
0.0
37.0
20%
15.6
0.0
21.4
12%
4.9
16.5
9%
564.8
141.3
20%
13.0
128.3
0.0
128.3
18%
60.0
0.0
68.3
10%
23.0
45.3
6%
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October, 2014
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Financial Outlook
We expect ARL revenues to grow at a 3 year CAGR of 30% to ` 2096.9 crore in
FY17 driven by new product launches, a shift towards the branded formulation
segment and foray into new geographies. We expect EBITDA to grow at a 3 year
CAGR of 27% to ` 372 crore in FY17 backed by an increase in utilization of existing
plants and expansion in India. However, we expect ARLs EBITDA margin to
contract by 180bps to 17% over FY14-FY17, as the expansion rollout costs are front
ended. We expect ARLs PAT to grow at a 3 year CAGR of 42% to ` 173.9 crore in
FY17 led by healthy revenue growth. The PAT margin is expected to expand to 8%
in FY17 from 6.3% in FY14.
Revenue, EBITDA Margin and PAT Margin
2500
Rs.Crore
25%
2000
20%
1500
15%
1000
10%
500
5%
0%
FY11
FY12
Revenue
FY13
FY14
FY15E
FY16E
FY17E
Valuation
We initiate coverage on ARL as a BUY with a Price Objective of ` 100 representing
a potential upside of ~150% over a period of 24 months. At the CMP of ` 40, the
stock is trading at a P/E multiple of 1.6x FY17E. We assign ARL a P/E multiple of
4.0x which is in line with its one year average. The P/E of 4.0x implies a target price
of ` 100 on FY17 EPS of ` 25/share. Also, in our opinion, there exists an upside risk
to our margin assumptions, which if it fructifies, could lead to a re-rating of the stock
sighting improved profitability.
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October, 2014
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P/E
120
100
80
60
40
20
0
Mar-08
Mar-10
CMP
3.5X
Mar-12
4.75X
6X
Mar-14
7.25X
8.5X
P/BV
70
60
50
40
30
20
10
0
Mar-08
Mar-10
CMP
0.6X
Mar-12
0.75X
0.9X
Mar-14
1.05X
1.2X
EV/EBITDA
1400
1200
1000
800
600
400
200
0
Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14
EV
1X
2X
3X
4X
5X
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Thursday 16
October, 2014
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963.2
1301.1
1677.9
2096.9
36.3
35.1
29.0
25.0
781.3
1044.0
1355.0
1724.9
% Chg.
38.3
33.6
29.8
27.3
EBITDA
181.9
257.1
322.9
372.0
18.9
19.8
19.2
17.7
Other Income
0.0
0.0
0.0
0.0
Exceptional items
0.0
0.0
0.0
0.0
181.9
257.1
322.9
372.0
Depreciation
14.0
16.3
18.1
22.6
Interest
78.5
105.5
98.8
93.6
PBT
89.4
135.3
206.1
255.8
Tax Provisions
28.7
43.3
65.9
81.8
Reported PAT
60.7
92.0
140.1
173.9
% Chg.
Total Expenditure
EBITDA Margin %
PBDIT
EPS
10.0
13.5
20.6
25.5
Cash EPS
12.2
15.9
23.2
28.9
0.8
0.8
0.8
0.8
46.4
55.1
75.6
101.2
2.1
2.2
1.5
1.0
1.3
1.2
1.2
1.3
ROE (%)
21.4
24.5
27.2
25.2
ROCE (%)
16.2
17.2
19.5
19.9
2.0
2.0
2.0
2.0
P/E (x)
4.0
3.0
1.9
1.6
P/BV (x)
0.9
0.7
0.5
0.4
EV/Sales (x)
0.9
0.8
0.7
0.5
4.6
4.1
3.5
2.9
DPS
Book Value
Capital, Liquidity, Returns Ratio
Minority Interest
0.0
0.0
0.0
0.0
EV/EBIDTA (x)
0.0
0.0
0.0
0.0
60.7
92.0
140.1
173.9
6.3
7.1
8.4
8.3
PAT
PAT Margin (%)
Balance Sheet
Share Capital
Reserves & Surplus
Minority Interest
Total Provisions
Total Borrowings
Other Long-Term Liabilities
Total Liabilities
Gross Block
Less: Acc. Depreciation
Net Block
Capital Work in Progress
Inventory (days)
75.8
86.0
81.0
76.0
Debtors (days)
115.5
125.0
120.0
116.0
Creditors (days)
39.5
39.0
39.0
39.0
89.4
135.3
206.1
255.8
14.0
16.3
18.1
22.6
-139.8
-125.8
118.2
-76.3
68.1
68.1
68.1
214.9
306.9
447.0
620.9
4.9
0.0
0.0
0.0
22.7
26.0
33.5
36.9
-28.7
-43.3
-65.9
-81.8
591.2
811.6
760.0
720.0
-65.1
-17.4
276.4
120.3
-142.2
-49.7
-70.0
-10.0
0.0
0.0
0.0
0.0
-14.5
-35.0
43.0
222.0
285.1
350.0
424.7
Capital Expenditure
1123.8
1497.7
1658.7
1870.6
Dividend Received
399.6
465.8
515.8
585.8
Others
116.9
-25.3
-64.2
-105.0
33.0
87.9
220.4
-51.6
-40.0
44.2
60.3
78.3
101.0
355.4
405.6
437.5
484.8
66.6
50.0
70.0
10.0
Others
Goodwill on Consolidation
1.3
1.3
1.3
1.3
Interest Paid
Non-Current Investments
0.0
0.0
0.0
0.0
690.1
1016.9
1090.9
1358.5
61.4
0.0
0.0
0.0
-78.0
-105.5
-98.8
-93.6
71.2
114.9
-150.4
-133.6
-19.2
33.2
21.0
19.7
10.5
25.0
60.0
17.0
24.3
5.1
38.4
59.4
1123.9
1498.7
1659.7
1871.6
5.1
38.4
59.4
79.1
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Thursday 16
October, 2014
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Appendix
New Product Pipeline Within Next 3 Years
Sr. No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
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October, 2014
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