Vivimed Labs Ltd. - Strong operational performance... - Ventura

Outlook

Vivimed backed by its strong product portfolio and successful integration of the recent acquisitions is likely to register robust growth in the next two to three years. The company being a net exporter is unlikely to be impacted negatively by the current currency depreciation. At a CMP of Rs 399, Vivimed trades at a PE multiple of 8.1x and 7.0x FY13 & FY14 earnings estimates. We remain positive on the stock and recommend a BUY with the revised target price of Rs 486.

Key Takeaways

On the back of acquisitions, Vivimed Lab's Q4FY12 revenues increased by 109.7% yoy to Rs 251.1 crore v/s Rs 119.7 crore in the previous corresponding quarter. For the fiscal year, revenues jumped by 60.7% to Rs 668.3 crore. Recently acquired Uquifa contributed ~ Rs 130-140 crore to revenue while the branded formulation business contributed Rs 14-15 crore.

Specialty Chemical Business de-grew by 6% to Rs 81.4 crore v/s Rs 86.4 crore in the previous corresponding quarter. The de growth on specialty chemical business was majorly on account of delays on supplies and certain other regulatory and environmental hurdles. The company's tie up with ISP for accelerated growth hit hurdles and delays on account of the recent acquisition of ISP by Ashland. However, the company feels that the issues would be resolved soon. Similarly, the active ingredient of a skin lightening product to be supplied to HUL was likely to begin in September 2011; however it got delayed and commenced supplies only in March 2012. However, we feel that the management is focused towards the specialty chemical business and we would see revival growth in next few quarters.

Pharma Business stood at Rs 170.6 crore, up 411% on the back of integration of the recently acquired Uquifa, Klar Sehens, Occttanis Nobel Labs Pvt. Ltd. The management plans to use Uquifa acquisition to establish a presence in branded formulations business. In the long term, the company would be looking to exit low margin contract manufacturing business. The management is also scouting for acquisitions in the branded formulation business in the regulated markets to reduce gestation period and establish presence in the high margin segment.

EBITDA for the quarter rose by 117.3% yoy to Rs 47.2 crore, primarily due to better product mix as compared to the previous corresponding quarter. The EBITDA margins for the quarter stood at 18.7%, up 70 bps. However, sequentially, the margins declined by 90 bps due to increasing contribution from low margin API business of Uquifa. The margins have come in line with our estimates. We expect, the margins to see slight correction on account of shifting of the product mix in favour of low margin API business.

The net profit grew by 83.1% to Rs 22.3 crore, slightly better than our estimates. The net profit margins stood at 8.8% for the quarter ended.

Vivimed has spent Rs 140 crore on capex in FY12. Out of it, Rs 50 crore in spent on land acquisitions for the SEZ while rest Rs 80 crore is spent for asset creation at existing facilities. The company is likely to spend similar amounts in the next few years in creating a branded formulations facility in India. The SEZ is likely to see delays on account of environmental and other regulatory hurdles.

Source : Equity Bulls

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