Shilpa Medicare

Background

Description of the main business of the company and brief history of its journey since incorporation.


Main Products/Segments

Oncology APIs, Custom Synthesis, Bulk Drugs, Nutritional Supplements, Drug Intermediates.


Main Markets/Customers

The company is currently exporting the APIs to European countries.

Customer List – Actavis, Ratio Pharma, Sandoz, Intaas Pharma, Dr Reddy, Cipla etc


Bullish Viewpoints

  • Shilpa has created a niche area for itself by taking a lead into manufacturing to high quality Oncology APIs and Custom Synthesis.
  • The Oncology space is the fastest growing segment in the Pharma industry worldwide. Domestically the sector is expected to grow at CAGR of 25-30%+ for next few years.
  • The entry barriers are high as this segment needs a lot of expertise and years of research. Therefore the margins are very lucrative – as high as 40-45%.
  • Shilpa Medicare has an excellent past track record. The company has grown at a CAGR of 53% over last 5 years. From a turnover of 49 Cr in 2006 to 260 Cr in 2010.
  • Shilpa is the largest Oncology API manufacturer in India
  • The company has excellent margins of 30% and nice Balance Sheet.
  • The company keeps debts under control. The company is expected to have reduced debt from 115 Cr in 2009 to under 60 Cr in 2010.
  • The company keeps a tight check over inventory and debtors. Historically both these items remain less than 15% of turnover.
  • Oncology drugs worth $ 9 bn will loose market¬†exclusivity¬†between 2009-13. Many of these products are on Shilpa’s product list.
  • In Custom Synthesis, the company has entered into a JV with its long time customer, ICE Italy. ICE Italy is one the largest manufacturer of Bile Acid derivatives.

Bearish Viewpoints

  • Going ahead competition should increase as more players are entering the lucrative Oncology segment.
  • Being major turnover coming from exports, Exchange fluctuations are major risk.
  • Delay in off-take from European Customers

Barriers to entry

  • Barriers to entry are high as this space needs lot of knowledge and involves complex chemistry.
  • It took Shilpa 8 years to get hold of Oncology API space.

Interesting Viewpoints

  • Fast growing companies in Sunrise Sectors usually get very steep valuations – generally more than 25-30 times PE multiples.
  • Shilpa Medicare is still available at about 15 times earnings.
  • The company is expected to again double its Net Profits (from current 45 Cr to 90 Cr) in next 2 years backed by ongoing expansions and JV.

Disclosure(s)

Ayush Mittal: More than 5% of Portfolio in the Company; Holding for more than 2 years


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