1. POLY MEDICURE HAS HAD A NICE RUN OVER THE LAST DECADE. SALES AND PROFITS HAVE GROWN AT OVER 25% CAGR. THAT’S A DECENT ACHIEVEMENT. CONGRATULATIONS!
What are the future plans? Where does the company see itself in the next few years? We have recently heard the company talking of a 300-400 Cr turnover goal – by 2013. That’s like a 30-50% plus CAGR for next 2 years. Kindly explain the reasons behind this optimism/aggression.
2. SAFETY DEVICES MARKET IS REPUTED TO BE A $1BN CURRENT MARKET. A 5% MARKET SHARE IS WHAT IS BEING AIMED AT BY POLY MEDICURE IN THE NEXT 2-3 YEARS, OR $50MN FROM SAFETY DEVICES ALONE.
You have successfully defended patent infringement suits by B. Braun (Safety IV Cannulae products) in the recent past –both in Indian & German courts. What is the current status? Does this make Poly Medicure only the second player in the world after Braun to manufacture this product for developed markets? How many players and how is the competition in this segment. How has the company seized the opportunity in Safety IV Cannulae devices? Any major wins in outsourced contracts?
3. USFDA APPROVAL RECEIVED FOR FARIDABAD PLANT IN DEC 2010
Kindly explain the significance of this development for Poly Medicure’s plans for the developed markets. How has the company benefited from this in FY11? Will FY12 see the company extracting the most of this opportunity.
4. PRODUCT SEGMENTS. SAFETY DEVICES, BLOOD BAGS, OTHERS
Kindly give us an idea of the revenue contribution & margins from major product segments. Which segments are expected to drive growth in next 2-3 years, where is the company’s focus and why?
5. BLOOD BAGS SEGMENT.
Recently we saw an announcement by the company on a contract for supply of single Blood Bags for total consideration of INR 12.93 Cr from Ministry of Health & Family Welfare. Please share the significance of this order, does it open up this segment for major growth for Poly Medicure?
6. CUSTOMER SEGMENTS –TOP CUSTOMERS & REPEAT BUSINESS
Who are your top Customers? How much do your top 5 customers contribute in revenues? Does any customer contribute more than 10% of Sales?
7. EXPORT MARKETS. SALES & MARKETING. OUTSOURCED MANUFACTURING FOR OEMS.
Exports contributed some 58% of Sales in FY10. Kindly explain your sales & marketing set-up for developed markets. What contribution is expected from outsourced manufacturing contracts? Are margin contributions likely to be much higher in outsourced contracts for Safety IV Cannualae. What is the split between Europe and US markets currently, and what is the picture for next 2-3 years?
How about the domestic market? Is your sales process any different here?
As mentioned before, this is mostly a Tender driven business in India. Roughly 60% of our domestic sales comes from Tenders, which is addressed by our direct sales force. The sales force also addresses major hospitals in Metros. About 15% of additional sales come from Direct Sales and the rest comes through distributors.
8. PRODUCT PRICING. SAFETY IV CANNULAE
Kindly give us a sense of product pricing on IV Cannulae vs Safety IV Cannulae and the margin contributions.
9. MARGINS & PROFITABILTY. SUSTAINABILITY
After a dismal FY08 and FY09, Poly Medicure registered an Operating margin of over 22% and Net Margin of over 12% in FY10. This was sustained, infact marginally improved in FY11. Return on Equity (28%) and Return on Capital Employed (25%) are back to robust levels for the last 2 years. How sustainable are these going forward? Are margins and profitability on an upward trend consider significance of new product segment and volumes coming from there?
10. FOREX DERIVATIVES CONTRACTS – FY08 AND FY09 SAW THE COMPANY TAKING A HIT ON ACCOUNT OF DERIVATIVE CONTRACTS ENTERED INTO BY THE COMPANY TO HEDGE THE RISK OF CHANGES IN FOREIGN CURRENCY EXCHANGE RATE ON FUTURE EXPORT SALES AGAINST EXISTING LONG TERM CONTRACTS.
Outstanding as at March 31, 2010 for hedging currency related risk aggregate to Rs. 118.54 Cr (Previous year Rs. 197.73 Cr). What is the current position on this front? How much of a risk does this currently pose? When will these contracts finally be over?
11. CAPITAL EXPENDITURE. TO GROW SALES, POLY MEDICURE NEEDS TO CONTINUALLY INVEST IN CAPACITY EXPANSION. WE HAVE HEARD OF INVESTMENTS OF RS.100 CRS IN CAPACITY EXPANSION.
What is the current capacity? How much was the capital expenditure incurred in FY11 and what is the expected ramp up in the next 2-3 years?
12. DEBT POSITION. FUNDING
FY11 debt stood at 40 Crs. What is the current debt position? How much additional debt is likely to be taken to fund current capacity expansions?
13. EUROPE AS A MARKET. EURO AS A CURRENCY. RISKS
How much of company’s sales comes from Europe. And is this booked in Euros or US$? Given the serious economic environment in Europe currently and the attendant risks both on the market and the currency, what is the sense that you are getting from your customers, and what has been the impact, if any? What steps are being taken to mitigate these risks?
14. MANUFACTURING FACILITIES BEYOND INDIA. THE COMPANY HAS BEEN TRYING TO SET UP A MANUFACTURING FACILITY IN SOUTH AMERICA FOR SOME TIME NOW. ANNOUNCEMENTS HAVE BEEN MADE A FEW TIMES, BUT NOTHING HAS FRUCTIFIED SO FAR.
Besides manufacturing facilities in India, you already have a manufacturing facility in Egypt and another in China. There seems to be a focus in the company for locating manufacturing close to important markets, but the contribution has been negligible so far? How has been the experience managing these facilities and what has been the progress? When will these contribute significantly to topline and bottomline?
Why is the South American presence so important? Is it for the Brazil market or catering to US market?
15. OVERSEAS ACQUISITION.WE HAVE BEEN HEARING OF AN ACQUISITION IN TEH RANGE OF $20-30 MN FROM TIME TO TIME.
What is the focus here? Is it to acquire a manufacturing facility or a sales & marketing set-up in developed markets?
Nothing has materialised so far. We are keen on acquiring a manufacturing facility close to developed markets where we can draw synergies form our production facilities, at the same time get increased market access for our products.
16. COMPETITION. PLEASE TELL US MORE ON THE COMPETITION YOU FACE FROM BITH DOMESTIC AND MNC PLAYERS IN THIS MEDICAL KITS & ACCESSORIES BUSINESS.
Hindustan Syringes are the biggest players in our niche, but only 10% of our product lines co-incide, as they concentrate mostly on syringes, which we do not manufacture. Then there is Eastern Medikit who compete directly with us on the whole product range, but they have poor financials. Besides them there is the Romsons group which has 6 brothers operating different facilities. Effectively we are the 2nd largest player in this segment.
MNC presence is small. There is a MNC player Bechtel Dickinson who have set up an ultra-modern plant in Manesar, Haryana. The plant set-up cost is 3x ours of comparable capacity. They cannot compete head-on with us and restrict themselves to the high-value niche segment.
17. RAW MATERIALS. RISKS
Raw Material is ~40% of Sales. With a rising crude prices scenario, raw material prices must be a cause for strain. Kindly explain how the company manages raw material price volatility risks.
18. TAX BENEFIT WITHDRAWALS. IMPACT ON MARGINS.
Effective tax rate for the company in FY10 and FY11 was under 10%. Now with the withdrawls in the benefits, what is the likely tax rate for FY12, and how significant will be the impact on net margins and growth? Any impact on Jaipur SEZ plans also because of the SEZ Tax exemptions being withdrawn too?
Yes, there will be significant impact on account of this. We are hopeful of minimising the impact through higher depreciation in our accounting and the margin expansion that is likley to accrue form the new products.
19. SHAREHOLDING PATTERN
Company has 48% in promoter holdings and then about 37% by persons holding more than 1% (few bodies have been holding since several years). Please throw some light on the shareholding pattern. Are some of these parties part of promoter group?
Most of these are people known to the Promoter group – not part of the promoter group. These people are long term shareholders. When our share price was in the RS 10-15 range, they have not exited and now that they know the company is on an inflection point, they are unlikely to exit their holdings.
20. MAJOR OPPORTUNITIES & CHALLENGES
Where does Poly Medicure see itself in the next 5 years? What is the size of the opportunity in its niche? Can we see Poly Medicure reach 1000 Cr Sales, by when? What are the major challenges before the company and where are the big opportunities?
Ayush Mittal: More than 5% of Portfolio in the Company; Holding for more than 2 years;
Donald Francis: No Holdings in the Company; ;
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