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Plethico Pharmaceutical Ltd (Code: 532739) Rs.344.70
Established in 1963 as a small partnership firm, Plethico Pharmaceutical Ltd (PPL) has gradually transformed into a fully integrated pharmaceutical and nutraceutical company with strong research and development (R & D) capabilities coupled with a robust manufacturing platform. It has well-diversified product profile to cover over the counter (OTC) drugs, pharmaceutical formulations, herbals, nutraceuticals, lozenges, candies, hospital consumables, food supplements, dietary supplements and veterinary product with brands that have created a strong identity in their respective segments. But unlike others, pharma players who are facing tough competition in the generics export market, PPL has adopted a completely different path focusing on high margin herbals and nutraceuticals. Both these segments are growing rapidly because clinically proven herbal products developed from scientifically validated herbal extracts offer a safe and natural alternative (against synthetic drugs) in treating lifestyle related disorders. In fact, PPL derives almost 95% of revenue from herbal and nutraceutical segments alone. Further, over 90% of its business comes from exports (35% from US alone) with domestic sales constituting hardly 10%. Thus, it is among the very few that have 500 plus formulations in more than 39 therapeutic segments and a portfolio of over 200 branded products sold in over 60 countries, including in the USA, CIS, Europe, Africa, GCC, Asia and Latin America. It has established a strong distribution channel which includes distribution companies, retail chains, drug stores, grocery stores, fitness clubs etc. Presently, PPL operates through the following three product segments:
1) Nutraceuticals (55%): Nutraceuticals basically include foods, dietary supplements and medical foods offering health/medical benefits including the prevention and/or treatment of a disease. It is a product with a functional ingredient that provides specific nutritional benefit. Post its acquisition of Natrol Inc, USA, in January 2008 for US$81 million, nutraceuticals has become the core business of the company as it contributes almost 55% of the total consolidated sales of PPL. Predominantly present in USA, Natrol has portfolio of healthcare and wellness brands representing quality nutritional supplements, functional herbal teas, vitamins & minerals supplement, weight loss
products and nutritional sport products. Operating since last three decades, it has created a strong distribution network with over 54,000 retail outlets in USA alone. Its key brands like Natrol, MRI, Prolab, Coach’s Formula, NuHair, Shen Min and Laci Le Beau are household names in USA. This acquisition has ranked PPL as the 11th largest company globally within the sport nutrition products market and 77th largest dietary supplements company globally in 2009 as per market research firm Euromonitor. Moreover, the company claims to be the pioneers of sports nutraceuticals industry in India.
2) Herbal (40%): A range of clinically proven herbal products developed from scientifically validated herbal extracts that offer a safe and natural alternative in treating lifestyle related disorders like diabetes, cholesterol, sleep disorders, digestive disorders and pain management. They are substitutes for a chunk of antibiotics and are thus preferred by green consumers. Through this division, PPL offers range of cough & cold remedies, formulas for high blood pressure, medicated lozenges & confectionaries. The key brands marketed by it under this division are Travisil, Mountain Herbz, Actifresh, Travopassit & several other confectioneries.
3) Allopathic (5%): Under this product segment, manufactures and markets branded generic formulations and trades in a few APIs. Its allopathic formulations include pain, cough and cold, anti-infective, anti-retroviral, anti-tuberculosis, anti-malarial, anti-inflammatory and gastrointestinal therapeutic products. Effertabs and Therasil are the two most popular allopathic brands of the company.
In addition to these product segments, PPL has formed three Strategic Business unit (apart from Natrol subsidiary) based on geographical segment– namely CIS SBU, Non-CIS SBU and Domestic SBU. Presently, it operates three fully integrated state of the art manufacturing facilities – two in Indore (MP) confirming to US FDA, UK-MHRA, CEU guidelines etc to manufacture allopathic and herbal products, whereas the one in Kandla (Gujarat) is WHO GMP certified and manufactures herbal & nutraceuticals products for exports PPL also owns a US GMP certified plant in Chatsworth, California, under Natrol. To setup its foothold in CIS (Commonwealth of Independent States) countries, the company holds 45% stake in the six distribution & marketing companies of Rezlov group. Besides, it acquired 20% stake in Tricon Holdings, a Dubai-based company having 400 retail pharmacy chain across CIS countries last year.
To maintain its growth momentum, PPL has constantly expanded its manufacturing capabilities and enhanced its global distribution network through several alliances and marketing tie-ups. To cash in on the Natrol brand, it has decided to manufacture and market Natrol’s top brands in India and make them available in the semi-regulated markets. In 2010, PPL entered into exclusive distribution agreement with Molekule India Pvt Ltd to market Natrol’s products in India for a period of three years. Now, it is contemplating to launch its leading homegrown brand Travisil and Actifresh SF in the US market. In order to augment its manufacturing capacity, PPL is setting up a modern medicated lozenges and solid doses formulation unit in UAE at over Rs.200 crore. Although the project is behind schedule, it is expected to commence operations shortly and will enjoy a 50-year tax holiday. This will enable it to make UAE as the main hub going forward. Moreover, PPL is planning to put up another manufacturing unit at Kandla SEZ (Gujarat). On the R&D front, the company is strengthening development in the areas of effervescent products, finger printed herbal extracts, a range of medicated/center filled lozenges, sustained release formulations, fast melt tablets and use of pelletization technology.
After integrating Natol’s business operation with itself and enjoying the synergy, PPL is now scouting for acquiring a business in Europe, which has licences for a site transfer. Fundamentally, it is performing well as it recorded an impressive 20% increase in consolidated sales to Rs.1518 crore and net profit rose 15% to Rs.231 crore (excl. extraordinary items) and thus it posted a basic EPS of Rs.68 on it current equity of Rs.34 crore and fully diluted EPS of Rs.57. However, the big concern for the company is the repayment of FCCBs worth Rs.400 crore, which is due in October 2012. This US $75 million FCCB was raised in 2007, but till date not even single FCCB has been converted despite resetting the conversion price to Rs.484. Even today FCCB holders are not interested in conversion and it may have to restructure the FCCB scheme again by amending the terms & conditions including buyback, repurchase etc. With debt: equity ratio of below 1, PPL seeks to raise debt in order to buy-back the FCCBs. Simultaneously, it is making a preferential allotment of 20 lakh warrants to be converted into equity at Rs.400 per share. Incidentally, PPL has very high promoter holding at 87% and with 10% held by financial institutions, hardly 3% stake is with the general public. With no FCCB conversion expected, it might place equity shares in future to bring down the promoters stake within the stipulated limit of 75%. And since the company is in the growth phase and needs funds for expansion, its dividend payout ratio is very less. Secondly, it has high outstanding debtor days due to which it generates only Rs.175-180 crore cash from operating activities. Despite these two concerns, investors can accumulate this scrip at declines for 50% return within 15-18 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BEST BETS
Plethico Pharmaceutical Ltd (Code: 532739) Rs.344.70
Established in 1963 as a small partnership firm, Plethico Pharmaceutical Ltd (PPL) has gradually transformed into a fully integrated pharmaceutical and nutraceutical company with strong research and development (R & D) capabilities coupled with a robust manufacturing platform. It has well-diversified product profile to cover over the counter (OTC) drugs, pharmaceutical formulations, herbals, nutraceuticals, lozenges, candies, hospital consumables, food supplements, dietary supplements and veterinary product with brands that have created a strong identity in their respective segments. But unlike others, pharma players who are facing tough competition in the generics export market, PPL has adopted a completely different path focusing on high margin herbals and nutraceuticals. Both these segments are growing rapidly because clinically proven herbal products developed from scientifically validated herbal extracts offer a safe and natural alternative (against synthetic drugs) in treating lifestyle related disorders. In fact, PPL derives almost 95% of revenue from herbal and nutraceutical segments alone. Further, over 90% of its business comes from exports (35% from US alone) with domestic sales constituting hardly 10%. Thus, it is among the very few that have 500 plus formulations in more than 39 therapeutic segments and a portfolio of over 200 branded products sold in over 60 countries, including in the USA, CIS, Europe, Africa, GCC, Asia and Latin America. It has established a strong distribution channel which includes distribution companies, retail chains, drug stores, grocery stores, fitness clubs etc. Presently, PPL operates through the following three product segments:
1) Nutraceuticals (55%): Nutraceuticals basically include foods, dietary supplements and medical foods offering health/medical benefits including the prevention and/or treatment of a disease. It is a product with a functional ingredient that provides specific nutritional benefit. Post its acquisition of Natrol Inc, USA, in January 2008 for US$81 million, nutraceuticals has become the core business of the company as it contributes almost 55% of the total consolidated sales of PPL. Predominantly present in USA, Natrol has portfolio of healthcare and wellness brands representing quality nutritional supplements, functional herbal teas, vitamins & minerals supplement, weight loss
products and nutritional sport products. Operating since last three decades, it has created a strong distribution network with over 54,000 retail outlets in USA alone. Its key brands like Natrol, MRI, Prolab, Coach’s Formula, NuHair, Shen Min and Laci Le Beau are household names in USA. This acquisition has ranked PPL as the 11th largest company globally within the sport nutrition products market and 77th largest dietary supplements company globally in 2009 as per market research firm Euromonitor. Moreover, the company claims to be the pioneers of sports nutraceuticals industry in India.
2) Herbal (40%): A range of clinically proven herbal products developed from scientifically validated herbal extracts that offer a safe and natural alternative in treating lifestyle related disorders like diabetes, cholesterol, sleep disorders, digestive disorders and pain management. They are substitutes for a chunk of antibiotics and are thus preferred by green consumers. Through this division, PPL offers range of cough & cold remedies, formulas for high blood pressure, medicated lozenges & confectionaries. The key brands marketed by it under this division are Travisil, Mountain Herbz, Actifresh, Travopassit & several other confectioneries.
3) Allopathic (5%): Under this product segment, manufactures and markets branded generic formulations and trades in a few APIs. Its allopathic formulations include pain, cough and cold, anti-infective, anti-retroviral, anti-tuberculosis, anti-malarial, anti-inflammatory and gastrointestinal therapeutic products. Effertabs and Therasil are the two most popular allopathic brands of the company.
In addition to these product segments, PPL has formed three Strategic Business unit (apart from Natrol subsidiary) based on geographical segment– namely CIS SBU, Non-CIS SBU and Domestic SBU. Presently, it operates three fully integrated state of the art manufacturing facilities – two in Indore (MP) confirming to US FDA, UK-MHRA, CEU guidelines etc to manufacture allopathic and herbal products, whereas the one in Kandla (Gujarat) is WHO GMP certified and manufactures herbal & nutraceuticals products for exports PPL also owns a US GMP certified plant in Chatsworth, California, under Natrol. To setup its foothold in CIS (Commonwealth of Independent States) countries, the company holds 45% stake in the six distribution & marketing companies of Rezlov group. Besides, it acquired 20% stake in Tricon Holdings, a Dubai-based company having 400 retail pharmacy chain across CIS countries last year.
To maintain its growth momentum, PPL has constantly expanded its manufacturing capabilities and enhanced its global distribution network through several alliances and marketing tie-ups. To cash in on the Natrol brand, it has decided to manufacture and market Natrol’s top brands in India and make them available in the semi-regulated markets. In 2010, PPL entered into exclusive distribution agreement with Molekule India Pvt Ltd to market Natrol’s products in India for a period of three years. Now, it is contemplating to launch its leading homegrown brand Travisil and Actifresh SF in the US market. In order to augment its manufacturing capacity, PPL is setting up a modern medicated lozenges and solid doses formulation unit in UAE at over Rs.200 crore. Although the project is behind schedule, it is expected to commence operations shortly and will enjoy a 50-year tax holiday. This will enable it to make UAE as the main hub going forward. Moreover, PPL is planning to put up another manufacturing unit at Kandla SEZ (Gujarat). On the R&D front, the company is strengthening development in the areas of effervescent products, finger printed herbal extracts, a range of medicated/center filled lozenges, sustained release formulations, fast melt tablets and use of pelletization technology.
After integrating Natol’s business operation with itself and enjoying the synergy, PPL is now scouting for acquiring a business in Europe, which has licences for a site transfer. Fundamentally, it is performing well as it recorded an impressive 20% increase in consolidated sales to Rs.1518 crore and net profit rose 15% to Rs.231 crore (excl. extraordinary items) and thus it posted a basic EPS of Rs.68 on it current equity of Rs.34 crore and fully diluted EPS of Rs.57. However, the big concern for the company is the repayment of FCCBs worth Rs.400 crore, which is due in October 2012. This US $75 million FCCB was raised in 2007, but till date not even single FCCB has been converted despite resetting the conversion price to Rs.484. Even today FCCB holders are not interested in conversion and it may have to restructure the FCCB scheme again by amending the terms & conditions including buyback, repurchase etc. With debt: equity ratio of below 1, PPL seeks to raise debt in order to buy-back the FCCBs. Simultaneously, it is making a preferential allotment of 20 lakh warrants to be converted into equity at Rs.400 per share. Incidentally, PPL has very high promoter holding at 87% and with 10% held by financial institutions, hardly 3% stake is with the general public. With no FCCB conversion expected, it might place equity shares in future to bring down the promoters stake within the stipulated limit of 75%. And since the company is in the growth phase and needs funds for expansion, its dividend payout ratio is very less. Secondly, it has high outstanding debtor days due to which it generates only Rs.175-180 crore cash from operating activities. Despite these two concerns, investors can accumulate this scrip at declines for 50% return within 15-18 months.
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