HESTER BIOSCIENCES WHERE BUSINESS IS A HEALTH MANTRA
Believing strongly in the 4A principle of ‘aware smallholder farmers can achieve great heights if appropriate products and services are made available to them at affordable prices’, the company provides over 40 items across poultry vaccines, large animal vaccines, health products and diagnostics that places it in a financially stable position
Hester Biosciences Limited is one of India’s leading animal healthcare companies and second-largest poultry vaccine manufacturer in the country. The company, established in 1987, has transformed itself from a small proprietary trading business into Asia’s largest one-stop animal biological manufacturing facility. The company has a strategic presence in over 30 countries and focuses on the market needs of India, Nepal and Tanzania. Hester Biosciences has partnered with various organisations over the years, namely, Bill and Melinda Gates Foundation, GALVMED, Golchha Organisation and recently stepped into the Egyptian market with Novapharma, to name a few.
The company has its headquarters in Ahmedabad, Gujarat. It believes in better health for human beings through healthier animals and strives to understand the challenges faced by people who care for production animals throughout the globe. The company is geared up to focus on ensuring the health of poultry and livestock. Hester Biosciences operates through four broad verticals: poultry vaccines, poultry health products, animal vaccines and animal health products. The services include seroprofiling kits and diagnostic labs for poultry flocks and mastitis control programs for cattle in addition to providing customers with end-to-end solutions.
The company strongly believes in the 4A principle: aware smallholder farmers can achieve great heights if appropriate products and services are made available to them at affordable prices.’ The company provides over 40 items across poultry vaccines (live and inactivated), large animal vaccines (live and inactivated), health products and diagnostics. It makes over two live vaccines for large animals, including Peste des Petits Ruminants (PPR) live vaccines and goat pox vaccine. The offerings include Avian, including Live B1, Live LAS, Live R2B, Live M48, Live FP, Gumboro M1, Gumboro I and Gumboro I+, swine fever vaccines, and large animal vaccines, including PPR vaccine Sungri 96 strain and Brucella Abortus (S19) calf vaccine.
Sector Overview
The veterinary healthcare industry consists of goods and services consumed for diagnosis, treatment and prevention of animal diseases. The establishments that provide veterinary services, veterinary medical equipment producers and animal medicine producers come inside the ambit of the same. Three categories included are veterinary services, veterinary medical equipment and animal medicine. The global veterinary healthcare industry touched USD 154.4 billion in 2019 and achieved a remarkable CAGR of 10.1 per cent between 2015 and 2019. The trend is expected to speed up further to achieve 11 per cent CAGR to reach USD 234 billion by 2023.
A study states that North America is the largest region in the global veterinary healthcare market, contributing 47.1 per cent share of the global industry in 2019. Following North America were Western Europe, Asia Pacific and then the other regions. Africa and Asia-Pacific regions are expected to be the fastest growing regions in the veterinary healthcare market.
The Indian animal health market is currently witnessing strong growth and expected to achieve a CAGR of 5.5 per cent between 2020 and 2025. Animal health can be defined as regular monitoring of the health of domesticated animals or livestock, including the development of veterinary drugs, pesticides, feed additives, pharmaceuticals and biologics.
It also consists of ensuring constant food supply and preventing the outbreak of various zoonotic diseases such as feline leukaemia, animal flu, Lyme disease and tick infestation caused by viruses, bacteria and parasites. India is recorded to have the highest zoonotic disease burden among the developing countries with widespread illness and death. A study by International Livestock Research Institute (ILRI) states that 27 per cent of the livestock in India showed signs of being infected with bacterial food-borne diseases, which can be traced to food contamination. It can be said that rising prevalence of infectious and parasitic diseases is creating a further wave of innovation in managing animal health.
Financial Overview
The operational and financial performance of Hester Biosciences indicates that on a consolidated quarterly basis net sale increased to Rs 56.89 crore in Q3FY21 as compared to Rs 50.69 crore in Q3FY20, a rise of 12.23 per cent. Operating profit was recorded at Rs 22.45 crore in Q3FY21 as against an operating profit Rs 21 crore in Q3FY20. Q3FY21 recorded a net profit of Rs 12.87 crore as compared to net profit of Rs 11.95 crore in the same quarter in the previous year, increasing by 7.71 per cent. On an annual basis, its net sales rose by 4.84 per cent from Rs 88.96 crore in FY19 to Rs 93.26 crore in FY20. The operating profit dropped by 4.21 per cent in FY20 as compared to FY19.
The net profit was 17.92 per cent lower in FY20 at Rs 11.73 crore as compared to Rs 14.29 crore in FY19. The gross profit margin surged up from 66.76 per cent in Q3FY20 to 68.22 per cent in Q3FY21. During the same quarter, on a QoQ basis, the EBITDA margin and NP margin also jumped from 29.9 per cent to 38.97 per cent and from 17.81 per cent to 25.16 per cent, respectively. Financial ratios like ROE (return on equity), ROCE (return on capital employed) and ROI (return on investment) also improved around 7-8 per cent in the recent quarter. The valuation ratios were in favour of investors with the PE ratio dropping from 29.98 in FY19 to 25.20 in FY20. The price to book ratio dropped from 7.33 in FY19 to 3.87 in FY20. The EV/EBITDA ratio also dropped from 19.06 in FY19 to 14.91 in FY20.
Business Overview
✓Hester India: Sales showed an increase of 32 per cent in the poultry healthcare segment in Q3FY21 as compared to Q3FY20 whereas the animal healthcare segment saw an increase of 4 per cent in Q3FY21 as compared to Q3FY20. The low growth in animal healthcare segment can be attributed to the large tender orders received in Q3 of FY20 as against not received in Q3FY21. Vaccine sales have registered a growth of 20 per cent on QoQ basis and 12 per cent in 9MFY21 as compared to the corresponding period last year. Domestic sales registered a growth of 43 per cent in Q3FY21 and 20 per cent in 9MFY21 and export sales have reduced by 51 per cent in Q3FY21 and 5 per cent in 9MFY21. While export orders continued to flow in and subsequently the higher demand within India compelled the company to divert the production for domestic sales. The company informed that there was no impact of the bird flu situation in India on their sales.
✓Texas Lifesciences: Revenue was recorded at Rs 5.17 crore in Q3FY21 as against Rs 3.33 crore in Q3FY20, an increase of 55.25 per cent. Texas Lifesciences continued to show growth in topline due to the growth in sales of health products at Hester India. A direct registration process for products to be exported to various African countries has been started by the company.
✓Hester Nepal: The revenue for Q3FY21 was recorded at Rs 3.62 crore as against Rs 0.86 crore in Q3FY20, rising significantly. FAO tenders for PPR started well (though in a small way), which resulted in enhancing the topline in Q3FY21 and the company is aiming to follow the same in the coming part of the year.
✓Hester Tanzania: The revenue for Q3FY21 was recorded at Rs 1.66 crore as against Rs 0.88 crore in Q3FY20, a rise of 88.63 per cent. The company is in the process of establishing sales and distribution network focusing on demands from the domestic market as well as East African countries.
✓Hester Africa: The project is nearing completion. Commercial production has been outlined for June 2021.
Major growth enablers for the animal healthcare industry include the rising prevalence of zoonotic diseases and various technological advancements such as the integration of the Internet of Things (IoT) with animal health monitoring solutions
Conclusion
Major growth enablers for the animal healthcare industry include the rising prevalence of zoonotic diseases and various technological advancements such as the integration of the Internet of Things (IoT) with animal health monitoring solutions. These are coupled with the increasing utilisation of mobile sensors and wearables to monitor animal behaviour and health, increasing the demand for poultry and milk products, which is in turn driving the demand for feed additives, vaccines and drugs. The boost in the number of government strategies to promote healthcare policies also plays an important role in development of this sector.
Hester Biosciences has a strong portfolio in terms of health products and vaccines, which poultry farmers are attracted to, especially those who are used to a regime of using proper vaccines which are currently available, using good feed additives and health products, and following a systematic sanitization program. This has definitely helped the company even in the bird flu situation. Hester Biosciences is committed to setting up a division for herbal products before the year end. The company will be introducing a reasonable wide range of herbal products. Owing to the rising demand for vaccines in India, the company plans to embark on an expansion plan. The capacity of vaccines will be increased, and the expansion plans will be finalised and implemented. Brucella and LSD vaccines have shown expansion opportunities in India and till the expansion activities come on track, Hester India will focus on the Indian market.
The company says that exports will be mainly of health products. It is also evaluating expansion opportunities in manufacturing and distribution of animal health products and biologicals globally. The board has authorised the management to explore appropriate financing alternatives for its expansion activities with an aggregate outlay of Rs 200 crore. The company also has ongoing developmental activities for the human corona virus vaccine with IIT Guwahati. Hester Biosciences gives us positive indications regarding the growth of the company’s business through its expansion plans and its efforts towards providing best quality services for animal healthcare. Hence, we recommend a BUY for this company.