Innova Captab Limited (Subscribe)

Highlights

Innova Captab Limited (ICL) was incoprporated as Harun Health Care Private Limited in 2005 and later changed their name to Innova Captab Private Limited in 2010 in order to reflect innovations in the pharmaceutical sector. The company is an integrated pharmaceutical company in India with a presence across the pharmaceuticals value chain including research and development, manufacturing, drug distribution and marketing and exports.

ICL business includes (i) a contract development and manufacturing organization (CDMO) business providing manufacturing services to Indian pharmaceutical companies, (ii) a domestic branded generics business and (iii) an international branded generics business.

According to the Crisil’s report the company have recorded the third highest operating revenue, the second highest operating profit margin, the third highest net profit margin and the second highest return on capital employed among Indian formulation CDMO players in FY22.

In FY23 and in the Q1FY2024, they have manufactured a diverse generics product portfolio of over 600 products and market them under their own brands in the Indian market through a developed network of approximately 5,000 distributors and stockists and over 150,000 retail pharmacies.

In ICL’s CDMO business, they have developed relationships across the Indian pharmaceutical industry. Some of thier key customers include Cipla Limited, Glenmark Pharmaceuticals Limited, Wockhardt Limited, Corona Remedies Private Limited, Emcure Pharmaceuticals Limited, Lupin Limited, Intas Pharmaceuticals Limited, Leeford Healthcare Limited etc.

Out of the total proceeds of Rs. 5,700 mn, Rs. 1,440 mn would go towards repayment and / or prepayment, in part or in full, of certain outstanding loans of the company, Rs. 236 mn would go towards Investment in their Subsidiary, UML, for repayment or prepayment in part or full of outstanding loans availed by UML, Rs. 720 mn would go towards funding working capital requirements and Rs. 2,500 mn would go towards existing selling shareholders of the company.

Key Highlights

• The Indian CDMO market has grown at a rate of 14 pct in the last 5 years from FY18 to FY23, and CRISIL Research expects this trend to continue over the next 5 years from FY23 to FY28 with the Indian CDMO market expected to grow at approximately a 12-14 pct CAGR over the next five years from Rs. 1,310 bn in FY23 to Rs. 2,400-2,500 bn in FY2028. ICL is well positioned to get benefit from the fast-growing CMDO market.
• ICL also has an international branded generic product business focused on exports to emerging and semi-regulated international markets. They are expanding their international branded generics business to regulated markets like the United Kingdom, and Canada. In Fiscal 2023 and in Q1FY24, they have exported branded generics to 20 and 16 countries, respectively.
• The company has two manufacturing facilities in Baddi, Himachal PradeshIn terms of capacity for manufacturing finished tablets and capsules, Innova Captab Limited stood third among the CDMO formulation players considered above with manufacturing capacity of 10,664 mn units per annum. In addition, they are planning to construct a new 240,916 sq. ft facility in Jammu with an estimated cost of Rs. 3,551 mn, which will include tablets, capsules, dry syrups and injections.
• The company’s future outlook includes (i) Expansion of their manufacturing capacities (ii) Expand the wallet share of existing customers and develop new customers (iii) Continue to focus on their R&D operations (iv) Grow their international export business and expand domestic branded generic business (v) Growth through strategic acquisitions and (vi) integration of the acquired Sharon business.
• The company has acquired Sharon under the IBC and the company has infused Rs. 1,954 mn on June 26, 2023. Sharon offers contract manufacturing services for pharmaceutical products. Sharon caters to both domestic as well as international markets including Canada, the United Kingdom, Europe, Australia and Central and South America. And has manufacturing plants located in Dehradun, Uttarakhand and Taloja, Maharashtra.
• Out of the total sales of the company the CDMO services and products segment contributes ~73.36 pct of sales, Domestic branded generics segments contribute ~17.94 pct of sales and International branded generics segment contributes ~8.71 pct of the overall sales.
• Sales of the company has grown by 50.2 pct CAGR during the period FY21-23 while EBITDA and profit grew 40.35 pct CAGR and 40.39 pct CAGR over the same period respectively. During FY23, company reported sales of Rs. 9,263 mn which increased by 15.7 pct YoY while EBITDA rise by 24 pct YoY to Rs. 1,228 mn as EBITDA margin improved from 12.35 pct in FY22 to 13.26 pct in FY23. Profit in the FY23 stood at Rs. 680 mn, which increased by 6.4 pct YoY.

Key Risk

• Dependence on China, China SEZ and Hong Kong for their raw material supplies exposes us to political, economic and social conditions in greater China.
• About recently acquired Sharon, the company do not know whether they will achieve the expected benefits from such acquisition, which could materially adversely affect their business, results of operation, cash flows and financial condition.

Valuation

Innova Captab Limited is an integrated pharmaceutical company specializing in branded generic products for the domestic and international markets. Considering its recent strategic acquisitions, the upcoming new facility in Jammu, and continued R&D focus offer promising growth prospects. At the upper end of the price band, the issue is quoting at PE of 36.4x its annualised FY24E earnings. One can Subscribe for a longer term perspective.

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Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.