Plethico Pharma

Global Revenues Pick Up; Co Plans FCCBs To Cut Debt

 

PLETHICO PHARMA, a small-cap pharma company manufacturing nutraceuticals and over-the-counter products, has witnessed a gradual rise in its stock price over the past one year. The company's stock price surged by 280% over the past year, significantly outperforming the Sensex and ET Pharma Index. While the rise is quite steep, the stock has not undergone any re-rating. It has just managed to recover its losses in September-October 2008.

   Plethico, which closes its financial year in December, witnessed poor performance during the first half of 2009. The company's earnings increased revenues from the Commonwealth of Independent States (CIS) region. And as the consumer demand in the US improved marginally, its performance witnessed good progress in the third quarter. Its USbased subsidiary Natrol, which has a strong portfolio of brands in the healthcare and wellness space catering to the US and other export markets, is also showing stability in its performance.

   Consumer sentiment in the US still has significant scope for improvement. Increased export sales of Natrol from markets like CIS, Africa, Latin American countries, Gulf Co-operation Council (GCC) and South East Asian Countries are a major growth driver for the company, going forward. Revenues from the CIS region following its contract manufacturing deal with Tricon are also expected to boost Plethico's revenues.

   The company had raised FCCBs worth $75 million that will mature by October 2012. In view of this, the company's board of directors last week passed an enabling resolution to raise $100 million for debt repayment. Though the fund raising is likely to result in an equity dilution ranging between 13% and 18%, it will bring down the debt-equity ratio from the current level of 1.

   With a market cap of around Rs 1,300 crore, the company's stock is valued at a little over its annual consolidated revenues of over Rs 1,000 crore. It is trading at a consolidated price-to-earnings multiple of 11.3. This seems to be a fair valuation for the company, given its size and recovery in financial performance. If Plethico sustains its improved performance, it deserves to command better valuations.