Ind-Swift Laboratories (ISLL) is a pharma company with a turnover of Rs 1031 crore, that has been growing briskly at a three-year CAGR of 30.60% in topline and 41% in bottomline, respectively. It has good products and a robust product pipeline, has been aggressively focusing on new markets and continuously expanding capacities and is a direct beneficiary of patent expiry in the developed markets.

In addition to the factors stated above, the company has a consistent dividend history, and is still available at a market cap of just Rs 264 crore, or a PE of merely 2.46x. Surprising as this may seem, it is true, and in the current market scenario, it is definitely a good value pick. It makes ample sense to grab the scrip at its CMP of Rs 79.

ISLL is a manufacturer of Active Pharmaceutical Ingredients (APIs), and supplies to various domestic formulation companies and generic players across regulated and semi-regulated markets, with a focus on therapeutic segments such as antibiotics, cardiovasculars, antihistamines etc. Currently, 60% of its revenues come from India, while the balance 40% comes from Europe, Middle East, Asia Pacific and the US.

The company has a strong basket of 40 products. Clarithromycin is a major revenue contributor, bringing in about 18.76% of its sales. Along with it, Clopidogrel (at 4.18%), Menthol (10.29%), Atorvastatin (4.26%) and Fexofenadine (3.62%) together make up the top five products, and bring in 41.11% of the company’s total revenues. The balance 58.89% comes from other products.

There are reasons why we believe that ISLL should do well. The domestic formulation market continues to grow strongly at around 15-16% annually Also, the fact that the market continues to remain fragmented, with the largest market share for a pharma major standing at just around five%, presents huge growth opportunities for companies like ISLL.

The rise in patent expiry will further drive ISLL’s growth, as over the next few years, drugs worth over USD 99 billion are expected to go off patent. In fact, ISLL is already positioning itself as a primary supplier of APIs to generic players in the regulated markets, and is steadily increasing its presence in countries like US, Europe and Japan. The company has also entered into agreements with global players for the supply of blockbuster drugs to these markets on patent expiry.

Besides, with the firm’s facility being FDA-compliant, and with a robust product basket of 40 products and another 20 in the pipeline, ISLL is sweetly poised to benefit from the same. Preparing itself to cater to this demand better, ISLL has been continuously expanding its capacities, and has already spent around Rs 276 crore in the last four years. In fact, in this fiscal too, ISLL is going for a capex of Rs 180 crore, which would be funded through debt and equity. All this bodes well for ISLL, as it will help push its revenue growth further.

For Q1 FY12, ISLL's sales grew almost 41% to Rs 279.43 crore (Rs 198.6 crore), while profits increased by 17% to Rs 17.33 crore (Rs 14.86 crore). For FY12, the management expects revenues to touch Rs 1150 crore, while profits could be around Rs 110 crore. At these estimates, the scrip is available at a PE of 2.46x, which is quite low. With consistent dividends (FY11 dividend at Rs 1 per share on FV of Rs 10), it makes sense to grab the scrip with a one-year target of Rs 98.