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 |