PARENTERAL Drug India

 

Given its growth prospects, Parenteral Drug's stock looks reasonably priced at the current levels. Long-term investors can consider the stock.

 

PARENTERAL Drug India (PDIL), a leading player in the intravenous fluids segment, is planning aggressively to increase its reach across emerging markets. It is also increasing its focus on other businesses — oncology and formulations. Its stock has outperformed the ET Pharma Index over the past one year and still looks promising for long term investors.

BUSINESS:

Established in 1983, the Indore based company is the largest manufacturer of intravenous (IV) fluids in India. It commands around half of the IV fluid market for the institutional segment (including hospitals), and one-fourth of the overall market (includign institutional and private clinics. PDIL has strategically diversified into formulations and oncology. Both the divisions have grown at a CAGR of just over 50% in the past two years. It has got its products registered with United Nations Offices for Project Services (UNOPS) that provides medications to poorer communities around the globe. In addition, it has set up JVs in Mauritius, Kenya and Kazakhstan with a 51% stake in the first two and 85% in the third venture. The JV in Mauritius and Kenya will set up intravenous fluid capacity at a cost of Rs 60 crore and Rs 40 crore, respectively, while the facility in Kazakhstan will be set up for Rs 40 crore. All operations from the new facilities will be commissioned in FY12.

GROWTH DRIVERS:

The company has undertaken a strategy to domestically produce and market some of the important drugs that were so far imported. This will enable cheaper supply of critical medicines. For instance, PDIL launched paracetamol in intravenous form at one-third the price of the imported product. Despite this, the company hopes to achieve a 50% margin from this initiative. It plans to launch another four drugs in intravenous form in a month, most of which are currently imported into India. Further, it has entered in to a marketing pact with Piramal Healthcare to supply anaesthetic products in India and Nepal for 10 years. It bagged two orders worth Rs 51 crore in the March '10 quarter and expects to generate orders worth Rs 74 crore this fiscal. Its global JVs are likely to add another Rs 180 crore to topline in FY12. Revenue will get a further boost once its anti-rabies vaccine hits the market.

FINANCIALS:

PDIL's revenue grew by 56% to Rs 421 crore in FY10 while net jumped three-folds to Rs 33 crore. It has guided for a revenue growth of 50% and net profit growth of 60% in FY11.

VALUATIONS:

At the current market price of Rs 240, the stock is trading at a P/E multiple of 15.4. Considering its growth guidance, the company is likely to generate earnings per share of Rs 27 on a conservative basis in FY11. This means the stock is currently traded at nine times its one-year forward earnings. The average P/E for the pharma sector is over 23. Given its growth prospects, PDIL's scrip looks reasonably priced at the current levels. Longterm investors can consider the stock.

CONCERNS:

To fund its international joint ventures, PDIL may have to raise funds through debt and equity. If this happens, its interest burden may increase, while earnings per share may decline due to equity dilution. Further, the company lacks experience in international business. Hence, there is a risk associated with its global ventures.