Shilpa Medicare – A strong bet on Oncology

The company has come out with very good June Qtr nos and deserves a closer tracking.

About the company and the business:

  • Company has been expanding in the Oncology space and wants to be the largest Oncology API manufacturer in India apart from big formulation cos which do production for captive use. This space has lesser competition and hence quite high margins
  • Go through the announcements of the regulatory approvals the company has achieved in last 1 year. Co claims to be one of the few cos to get such approvals
  • Company expects to get USFDA approval by year end.

On Financials:

  • Company has scaled up from just 25 Cr topline in 2003 to 138 Cr last year and targeting close to 200 Cr this year.
  • Margins have been on the rise over the years due to co’s deliberate move from low margin to high margin business. The margins are currently at 25%+…on a turnover of 200 Cr this will result into an operating profit of 50 Cr, from this we should subtract the interest and taxation cost, which shouldn’t be more than 7.5 & 10 Cr respectively. We get a figure of 35 Cr+ as potential cash flow this year and NP could be close to 25 Cr, conservatively.
  • For margins calculations I have been removing the forex adjustments. Last year the company suffered a notional 10.85 Cr forex loss on the outstanding ECB. In this quarter there is a gain of 2.9 Cr.
  • There are some losses in the consolidated nos, as the company did an acquisition in Austria last year. These losses are expected to come down soon.

Why I like the company:

  • I like companies with scalable business model having high operating margins. Shilpa is growing fast with operating margins expected to remain very healthy around 25%.
  • The company seems honest and has been applying conservative accounting policies. The company has been providing good amount of depreciation and tax at the maximum rate.

Valuations:

  • Currently trading at less than 8 times expected FY 10 EPS of 12 (this EPS is excluding forex gains/losses). Not very cheap but a strong buy on declines.

Annexure 1:

Year

200303

200403

200503

200603

200703

200803

200903

201003
Type

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year
Sales Turnover

24.11

35.66

37.51

47.62

68.39

95.81

138.09

200.00
Other Income

1.78

0.73

1.12

1.27

2.36

2.52

0.90

Total Income

25.89

36.39

38.63

48.89

70.75

98.33

138.99

200.00
Total Expenditure

23.68

30.88

32.79

40.58

56.79

77.22

102.00

Operating Profit

2.21

5.51

5.84

8.31

13.96

21.11

36.99

50.00
Interest

0.29

0.46

0.31

0.39

0.32

0.85

4.92

7.00
Gross Profit

1.92

5.05

5.53

7.92

13.64

20.26

32.07

43.50
Depreciation

0.30

0.82

1.00

1.77

2.30

3.51

6.05

9.00
Extraordinary Adj

0.00

0.00

0.00

0.00

0.00

0.00

10.85

0.00
Tax

0.63

1.74

1.24

1.88

3.48

5.44

8.39

9.00
Reported PAT

0.99

2.49

3.29

4.27

7.86

11.31

6.78

25.00
EPS

0.74

1.85

2.40

2.46

4.53

5.32

3.08

11.35
PE

12.00
Exp Price

136
CMP (26-Jul-09)

95
OPM %

9.17

15.45

15.57

17.45

20.41

22.03

26.79

25.00
NP %

4.11

6.98

8.77

8.97

11.49

11.80

4.91

12.50
Mcap

209.24
ROCE:

21.73

39.54

29.53

17.61

21.34

12.21

18 thoughts on “Shilpa Medicare – A strong bet on Oncology”

  1. Pingback: Excellent Q2 nos from Shilpa Medicare | Dalaal-Street
  2. Pingback: Three cheers for Shilpa Medicare
  3. Pingback: Our stocks in Media

          1. Not really – its just that I am getting interested in health care related stocks (given the potential). Span looked like a good promising company and wanted to see if it was on your radar.

  6. Hi Ayush,

    I am Rajat here, met you at the Delhi ISG meet. Have been following your post for quite some time now.

    In light of good results of Q4, I guess it is still a good buy at 250?

    Thanks.

    Regards.
    Rajat

    Reply

    1. Hi Rajatji,

      Good to see your msg. Yes, Shilpa Medicare is a good long term pick.

      Oncology (Cancer) is the fastest growing segment in the Pharma industry and Shilpa Medicare is one the leading player.

      Regards,

      Reply

    1. Hi,

      Shilpa Medicare seems to be a very good co to be for long run. The past track record has been excellent.

      The stock has been falling due to almost no growth over last 1 year in the performance of the co.

      But growth is expected to come up over next 6 months to 1 year. Lets see how things develop.

      Regards,

      Reply
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