Ind-Swift Ltd.: An emerging pharma highflier
When a company records good growth rates for five consecutive years, it wins investor fancy and enjoys better market rating. If the same company readies itself for even better growth in the ensuing five years, it ought to rate as a highflier in the market place. But if such a company gets unimpressive ratings to its peers, it offers excellent opportunity for wealth creation in the long run. Discerning investors should not miss opportunity. In this context, Ind-Swift Ltd. (ISL) (Code No: 524652) (Rs.53.45) beckons investors.
Industry Focus:
The global pharmaceutical industry is valued at about USD 480 bn. And Indian pharmaceutical industry is the fourth largest in the world. From now to 2012, some USD 80 billion worth of drugs are coming off patent. This provides USD 20 billion opportunity for Indian Pharma companies who get their generics act right. Indian companies are recognized as low cost producers of high quality bulk drugs and formulations. Their costs are estimated at one-eighth in R&D to one fifth in manufacturing costs compared to their western counterparts.
Forward looking Pharma companies, which are well prepared for this unfolding events outperformed the Indian Pharma majors. Matrix Laboratories Ltd., Divis Laboratories, Glenmark Pharmaceuticals Ltd etc emerged as the new highfliers in the past few years in the past few years. Ind-Swift Ltd, which was focused only on the Indian market earlier, is now a late entrant to this Pharma club.
Group focus:
ISL is the flagship company of the Rs 490 cr. Chandigarh based upcoming Ind-Swift Group. It promoted Ind-Swift laboratories Limited (ISLL) in 1995 for the manufacture of bulk drugs and API’s (Active pharmaceutical ingredients). Presently, both the companies are listed on BSE and NSE. ISL owns 24.31% of ISLL as on 31-03-2005. ISLL recorded a turnover of Rs. 239-50 cr and a net profit of Rs 26.5 cr in the last fiscal on its equity of Rs. 18.4 Cr. Recently, ISLL completed a GDR issue of USD 10.625 mn. Each GDR representing one underlying equity share was priced at USD 4.25 each to be listed on the Luxembourg Stock Exchange.
Company focus:
Though it started as a small size cottage unit in 1986, ISL has grown fast and transformed itself as a modernized research-focused large generic Pharma company of India which is rearing to arrive on the global scene. In the year 2000, it raised Rs. 59.95mn. and during 2004 it raised another Rs. 140.40 mn. To part-fund its modernization and expansion plans through private placements. During the year 2004, it merged with itself two unlisted group companies –Mukur Pharmaceutical Co Pvt Ltd and Swift Formulations Pvt. Ltd through the issue of its own shares. Presently, its equity stands at Rs. 7.28cr
Today, it has zero-quality standard; US FDA, WHO and CGMP complaint units across four Indian states – Haryana (Panchkula), Punjab (Jawaharpur), Himachal Pradesh (Parwanoo and Baddi) and Jammu and Kashmir (Samba-Jammu).
It has 500 products covering all major therapeutic segments of diabetology, cardiology, endocrinology, oncology, pediatric and gynaecology. It has emerged among the fastest growing Indian Pharma companies in branded generics and has launched a number of products at prices below the prevailing benchmarks. Its ‘Candesartan’ and ‘Pioglitazone’ tablets offer the lowest priced remedies in cardiology and diabetology. About 8 to 10 of its products figure among the five leading brands in their respective segments. The prominenet ones are ‘Distone’ ranked number 2 in the herbal treatment of stones in urinary bladder, ‘ Anaproct’ ranked number 3 in piles treatment, ‘Atstat Plus’ the only one OTC its kind in India (cardiology- combination of Atorvastatin and anti-oxidant), ‘Suprox SR’ ranked number 2 in gynaecology, ‘Clarie OD’ ranked fourth in the macrolide segment, ‘Stemin and Stemin forte’ ranked number 2 in steroids, ‘Udoxyl’ ranked number 3 for liver ailments and ‘ Metswift SR’ in antidiabetics etc.
Performance
ISL’s revenues rose from a meager RS. 1.86 cr in 1990-91 to Rs. 263 cr in 2004-05. growth in its bottom line is equally impressive as shown in the table:
Financial Performance:
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Particulars
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FY01
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FY02
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FY03
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FY04
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FY05
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Revenues
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117.42
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147.86
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179.15
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214.27
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263.56
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EBIDTA
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12.86
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15.35
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17.74
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23.61
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42.42
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Interest
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4.12
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4.56
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5.37
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7.55
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9.62
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Depreciation
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0.59
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0.73
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0.78
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0.95
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1.34
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Tax
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0.64
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1.73
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1.45
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2.14
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5.47
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Net Profit
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7.51
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8.33
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10.14
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12.97
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25.99
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Equity
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4.4
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4.4
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4.4
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4.4
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7.28
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Reserves
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29.28
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33.94
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43.16
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65.74
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102.52
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EPS**
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17.1
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18.93
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23.05
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29.48
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35.70/ 22.73*
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Dividend-%
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20
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20
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20
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20
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20
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*After reducing extraordinary revenue and profts due to sale of 8,00,000 shares of IndSwift Labs Ltd.
** Historical EPS was on share of Rs 10 face value. In May 2005, the company has sub-divided its share from Rs 10 face value to Rs 2 face value by converting 1 share into 5 shares. Projections will be for its share of face value of Rs. 2 each.
Its revenue growth over the last five years was good at 23% while it recorded over 35% growth in net profits during this period of 2001 to 2005. in FY05 it recorded 107.86% growth in income from CRAM (Contract Research & Manufacturing) from Rs. 64.94 to Rs 135 lakh. Revenue from CRAM is expected to rise as the company is in negotiations with various European Companies.
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R&D
The company is focusing strongly on R&D activities for the last few years with an exclusive R&D unit at Chandigarh with 35 scientists. It has developed expertise in NDDS (Novel drug delivery system) for old and new molecules whioch have found acceptability in India and abroad and has developed 15 products based on NDDS.
It was awarded Indian patents for two products a citrate salt of erythromycin derivative and a taste masked carbopol complex of fexofenadine. These are likely to mature into outsourcing alliances with Indian and global Pharma majors in coming months. It has launched a new finished dosage combination of Nitazoxanide and Ofloxacin for the first time in India.
It was awarded US and European patents for a NDDS form of Clarithromycin using Clarithromycine citrate salt. It targets to launch around 25 new products during this fiscal.
Its Chairman, Dr G. Munjal, aptly sums up its R&D focus – “ We are in process of developing more than 20 molecules expected to go off-patent between 2007-2011 with a market potential of USD 22 bn”
Future Outlook
It has recently commissioned its new formulations unit at Samba in Jammu, which enjoys tax breaks for the first 10 years. Phase I of the new facilities coming up at Jawaharpur in Punjab and Baddi in Himachal Pradesh will be operational in this quarter. After completion of these units at an outlay of Rs. 1000 cr., the company’s production facilities will almost triple. The company also plans to register its products in 10 countries.
In the 1st quarter of the current fiscal, the company recorded a turnover of Rs. 69.4 cr and net profit of Rs 5.2 cr registering growth rates of 20% and 31% respectively. Its performance in the 2nd half of this fiscal is likely to be even more impressive with additional contributions from the new units. Revenue of around Rs. 340 cr and a net profit of above Rs. 20.6 cr can be expected on a conservative estimate for FY06, which would result in an EPS of more than Rs. 5.66 on its Rs. 2 paid up capital.
Looking far ahead, the management targets a turnover of Rs. 1000 crores by the year 2010. Viewing the company’s past growth rates and its new plants that are being commissioned as well as the new products that are in store, ISL can touch Rs. 1000cr by the year 2010. it has the potential of recording revenue growth rates of around 35% from the year 2006-07 onwards. Growth rates of profits can be even better in view of the better margins from its foray into developed markets.
Investment Perspective
Of ISL’s equity of Rs. 7.28 cr., promoters hold 34.6%, corporate bodies hold 34.99%, mutual funds and FIs hold 2.18%, OCBs / FIIs hold 0.49% leaving the balance 27.74% only with the investing public as on 31-03-2005. its shares are presently traded around Rs. 60 at a P/E ratio of 8.4 against the industry average PE of 23.8. even looking at the PB ratio (Price to book value ratio), ISL’s share is grossly underpriced with a PB ratio of 1.20. considering its intrinsic book value of Rs. 49.95 (after taking into account the market value of its holdings in the ISLL), and in fact that Pharma companies of comparable size are traded at an average PB ratio of 5.6 in the current market, the ISL scrip has the potential to double and treble from this level in years to come.
However, its low float of 27.74% of its small equity of Rs. 7.28 cr seems to be acting to its disadvantage as FIIs do not evince interest in scrips with a low float. But after the listing of ISLL’s GDRs on Luxembourg, its parent company, ISL is likely to attract global investors. Since it is grossly under-owned by mutual funds, FIs and FIIs, its re-rating will be really swift and strong as and when it surfaces on their radar. Hence, medium term investors can look at an appreciation of more than 100% from its current price of around Rs. 60. for long term investors, it can be turnout to be another Glenmark Pharma in the making if the company’s management walks its talk right.
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