Shasun Pharma - Recognition for business robustness long overdue: On track for a bright future! - Equirus

Shasun Pharma is a leading CRAMs player in India with a niche in developing complex and difficult to manufacture products resulting in limited competition market opportunities. Shasun's past years EPS has been affected by a poor long term hedging decision which the company took in 2009 and impact of the same ends in Oct, 2012. The adjustment of the previous year performances for the hedging losses presents a much better picture even in a difficult macro environment in FY10 for CRAMs. Going forward, we see high visibility of sustained growth on the basis of long term supply contracts both in the CRAMs and the API division, in the form of Sales / EBITDA / PAT CAGR of 17% / 23% / 19% respectively over FY12-FY15E.

Best of both worlds with manufacturing presences in UK and India along with several drivers for robust growth in CRAMs segment : A presence in UK through its Dudley plant helps increase customer confidence through visibility and reach while manufacturing capabilities in India gives it the cost advantage that every customer expects from outsourcing. Incivek API supplies from UK subsidiary, three-fold capacity increase in formulations segment and several new drug contracts in CRAMs API to help the CRAMs division grow at a CAGR of 19% from 4,753 Mn in FY12 to Rs. 7,891 Mn in FY15E.

Expect steady growth in matured APIs; Incremental sales from three key drugs to start from Jun'13 onwards: Shasun is the world leader in supplies of Ibuprofen and its derivatives. Other key APIs include Gabapentin, Ranitidine and Nizatidine. We expect the company to show steady growth in most API supplies on the back of increased capacity and improved orders. Three limited competition drugs will boost this division as they go generic in 2013. We expect the API segment to grow at a CAGR of 15% from 5,410 Mn in FY12 to Rs. 8,231 Mn in FY15E.

Expect sound return ratios and expansion in EBITDA margins: Increased contribution from CRAMs segment along with improvement in operational efficiencies will lead to expansion of EBITDA margins by 220 bps over FY12 to FY15E. We expect ROEs/ROICs to sustain around ~28%/18% on the back of improved business outlook.

Initiate with LONG rating on the basis of turn-around and EPS growth: Shasun has historically traded weak due to weak bottom line performance in the past. However, we believe the company is set to see an upsurge in both top line growth and profitability. We value the company at 12x times Jun'13 EPS of Rs. 13.5 to arrive at our Target Price (TP) of Rs. 162.

Source : Equity Bulls

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