MOSL: SHILPA MEDICARE (Buy)-Formulation business drive earnings-outlook positive
Shilpa Medicare: Formulation business drive earnings; outlook positive
(SLPA IN, Mkt Cap USD0.5b, CMP INR430, TP INR620, 44% Upside, Buy)
- Sharp ramp-up in Formulation sales: Shilpa Medicare’s (SLPA) 1QFY19 revenue increased 17.6% YoY to INR1.9b (our estimate: INR2b), led by a 170% YoY increase in Formulation sales (27% of sales) and a 77% YoY rise in Non-onco API sales (27% of sales). Notably, the contribution of Formulation sales to overall sales increased from 12% YoY to 27% in the quarter. However, the momentum was dampened to some extent by de-growth of 44% YoY in the CRAMS business (13% of sales).
- Increased share of Formulation sales drives operating margin: Gross margin expanded 768bp YoY to 64.4% due to a superior product mix and a favorable currency movement. EBITDA margin also improved (+700bp YoY to 27.6% v/s our estimate of 22%) in tandem with the gross margin. EBITDA increased by 58% YoY to INR547m. PAT increased 40% YoY (+10.6% QoQ) to INR336m (our estimate: INR394m). Earnings growth trailed EBITDA growth due to higher depreciation cost on account of increased capacity utilization of the formulation facility and a YoY reduction in other income.
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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