Recommendations From Pharma Sector

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

SMS Pharma 

THE RIGHT PRESCRIPTION FOR YOUR PORTFOLIO 

HERE IS WHY Indirect Business Opportunity Attractive Valuations Pharma Vision 2020 

SMS Pharma undertakes contract manufacturing of APIs, intermediates (advanced and basic) offering a competitive advantage to its clients, especially in the late stage lifecycle of products. It is the single largest producer of anti-ulcer products. The company has diversified into CRAMS by creating research and manufacturing facilities bettering the requirements of the regulatory markets to appeal to international clientele. SMS Pharmaceuticals has ventured into highly specialised oncology segment by building first-of-its-kind dedicated oncology API and formulations manufacturing facility in Andhra Pradesh to target the niche market segments. The product range of the company includes APIs and Intermediates, cytotoxic solid dose, sterile cytotoxic liquid, and lyophilized products, bio-products, inorganic products and nutraceuticals. The company has two manufacturing facilities (two USFDA inspected), 2 pilot plants, and 1 R&D centre. 

In terms of financial performance, in the recently concluded quarter of FY19, the company’s standalone revenue for the quarter came in at Rs 125.11 crore, registering 5.7 per cent decline from the corresponding quarter of last year. During the period, the EBITDA rose by 16.7 per cent YoY to Rs 23.71 crore. Its EBITDA margin for the quarter improved by 360 bps from 15.3 per cent in Q1FY18 to 19 per cent in Q1FY19. The net profit for Q1FY19, increased almost 10 per cent to Rs 10.11 crore from Rs 9.7 crore in corresponding quarter of the previous year. 

Looking at the annual performance of SMS Pharmaceuticals, the revenue for FY18 increased marginally by 5.7 per cent to Rs 463 crore from Rs 438 crore in the previous fiscal. Notably, the company’s EBITDA for full year surged almost 25 per cent from Rs 75 crore in FY17 to Rs 93 crore in FY18. During the period, the company’s EBITDA margin improved 310 bps from 17.1 per cent in FY17 to 20.2 per cent in FY18. Meanwhile, its net profit increased almost 14 per cent from Rs 36 crore in FY17 to Rs 40 crore in FY18. In terms of valuations, looking at price-to-earnings (P/E) ratio of SMS Pharmaceuticals, the company is available an attractive valuation of 14.5x as against the five-year median P/E of 16.2x. The stock also looks attractive compared to industry’s P/E valuation of 30.72x. Moreover, in terms of price-tobook, the stock is presently trading at 1.93x, which below its five-year median price-to-book (P/B) 2.25x. 

It is a leading company in ranitidine, famotidine and sildenafil citrate in the domestic market. Ranitidine manufacturers who were competitors earlier have now stopped manufacturing the product, but to continue with their supplies to their customers as part of registrations and agreements, these manufacturers are buying advanced intermediates from the company, thereby giving indirect business to the company. 

The Government of India (GOI) unveiled ‘Pharma Vision 2020’ aimed at making India a global leader in end-toend drug manufacture. The approval time for new facilities has been reduced to boost investments. Further, GOI plans to incentivise bulk drug manufacturers, including both state-run and private companies, to encourage ‘Make in India’ programme and reduce dependence on imports of APIs, nearly 85 per cent of which come from China. Considering all these, we recommend our readerinvestors to BUY this scrip