MOSL: SHILPA MEDICARE (Buy)-Margins driven by superior product mix-remains aggressive in filings
​Shilpa Medicare: Margins driven by superior product mix; remains aggressive in filings
(SLPA IN, Mkt Cap USD0.8b, CMP INR658, TP INR797, 21% Upside, Buy)
- Strong growth in sales post adjusting for shift in business to JV: Sales fell 3.4% YoY to INR2b, but were better than our estimate of INR1.9b. The sales decline can be ascribed to the transfer of the CRAMS business to a JV (since 3QFY17). Excluding the impact of this transfer, sales growth stands higher at 24% (led by addition of formulations and healthy traction in Onco-API).
- Superior product mix drives margins: Gross margin expanded 970bp YoY to 58%, led by a superior product mix and higher income from exhibit batches. EBITDA margin of 27.8% expanded at a lower rate due to higher R&D and other expenses. Loss in JV and higher tax led to a PAT decline of 12% YoY to INR336m.
- Stable US sales from approved products: SLPA had US formulation sales of ~INR200m in 2QFY18 from two products. The company continued gaining market share in g-Vidaza. SLPA has filed eight ANDAs in 1HFY18, taking the total to 33 (only two approved till date).
- Changes in estimates to factor in shift of CRAMS business to JV: We have cut our sales estimates by 19%/22%/22% for FY18E/19E/20E to factor in the shift of the CRAMS business to the JV. We cut EPS estimate for FY18 by 16% to factor in lower profitability of JV due to lower capacity utilization. We marginally reduce our earnings estimate for FY19 and FY20, as we expect profitability from JV business to be back on track, with likely entry into newer markets from Q4FY18. Accordingly, we revise our price target to INR797 (prior: INR805), valuing at 25x 12M forward earnings.
Shilpa Medicare Limited is engaged in the business of manufacturing of bulk drugs or active pharmaceutical ingredient (API) and intermediates, and wind power generation. The Company's segments include Bulk Drug/Intermediates and Energy. It offers 3a 7b Dihydroxy. The Company deals with APIs, Intermediates, Formulations, New Drug Delivery Systems, Peptides/Biotech products and Specialty Chemicals. The Company supplies oncology/non-oncology APIs and intermediates. Its oncology API products include Anastrozole, Axitinib, Azacitidine, Abiraterone Acetate, Bicalutamide, Bortezomib, Busulphan, Cabazitaxel Amorphous, Capecitabine, Carboplatin, Cladribine, Clofarabine, Zoledronic acid, Vismodegib, Pemetrexed DiPotassium Nonahydrate, Cyclophosphamide Monohydrate and Cytarabine. It also offers AntiRetroVirals. Its non-oncology API products include Acebrophylline, Echothiophate, Nifedipine, Perfenidone, PrucaloprideSuccinate, Sildenafil Citrate, Ursodeoxycholic acid and Dimethyl Fumarate.
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