Nectar Lifesciences Ltd-Sustaining Life
BSE 532649; CMP Rs 163
Nectar Lifesciences is one of the leading players in the cephalosporin market, which is a life saving drug and is in high demand. The company has undertaken capacity expansions and is foraying into new product segments to gain a competitive edge and to cater to the regulated markets. The company is moving up the value chain and undertaking backward integration to cover the whole spectrum.
It has been performing well over the last three years growing at a CAGR of 21% in sales and 40% in PAT. Its NPM is high compared to that of Aurodindo Pharma and Orchid Chem which are dominant players in the cephalosporin market both in the domestic and world markets.
Valuations are attractive at 6x FY06 consolidated earnings (8.0x its standalone FY06).
Investment Rationale
Moving up the value chain and forward integration: Nectar Lifesciences has mainly been an API player in non-regulated markets. It is now looking at moving up the value chain. And to forward integrate, it will be shifting to formulations for which it is setting up a plant in Baddi at a capex of Rs.300m, which is expected to be commissioned in the fourth quarter of FY07. The full effect on revenues will be seen in FY08.
Entering the regulated markets: The company is entering the regulated markets of the US and Europe. To cater to the needs of the regulated markets, the company is increasing the existing cephalosporin capacities in Derabassi and adding capacities in Baddi. It has invested Rs.300mn to set up a formulations unit in Baddi for this purpose. The company will also develop third and fourth generation of Cephalosporin for the regulated markets.
Manufactures high-end cephalosporin: The Company has increased its concentration in the high-end cephalosporin segment. It manufactures the entire range of the product through 7 ACA process which makes Nectar the lowest cost supplier of the entire range of cephalosporins in the country.
Company Outlook
To strengthen its position in the fast-growing Cephalosporins market, the company has undertaken the following strategies
Expansion of the installed capacity in oral and sterile cephalosporin segments.
Setting up additional sterile cephalosporin manufacturing unit at Derabassi.
Addressing high-end Cephalosporin market to ensure superior operating margins.
Forward integration and foray into the manufacture of cephalosporin based formulations.
Backward integration into drug intermediates.
The company is present in the low volume high margin anti-infective segment in the domestic market valued at USD 30bn both in terms of revenue and prescription volume. In view of the growing cepahalosporin market and the company's strive to establish itself as a global player, the company is expected to perform well in the coming quarters.
Nectar has witnessed a CAGR of 21% in net sales over the last three years and going forward it is expected to do well supported by its capacity expansions and forward and backward integration.
Financials
Annual: The company had turned out a good performance in FY06 with the net sales registering a 42% growth, the EBIDTA going up by 134% and the net profit increasing by 58%. The EBIDTA margin improved to 25% compared to 15% in FY05.
Quarterly: The standalone net sales have gone up by 50%. The net profit was up 94%.
Valuations
The stock is trading at 6x its FY06 consolidated earnings, 7.0x its standalone FY06 earning. Nectar trades at much lower PE multiples when compared to companies like Aurobindo Pharma and Orchid Chemicals which are dominant players in Cephalosporins not only in the domestic markets but also globally.
No comments:
Post a Comment