Certainly a potential multibagger
By Pratit Nayan Patel
Established in 1986, IOL Chemicals and Pharmaceuticals Ltd. (IOLCP) is India’s one of the leading generic pharmaceutical company, and is a very significant player in the Organic chemicals space. It operates through Chemicals and Pharmaceuticals segments.
IOLCP is a major manufacturer in the speciality organic chemical space. It is one of the largest producers of Ethyl Acetate (87,000 TPA) and ISO Butyl Benzene (IBB) (12000 MT) in India with over 30% of the global market share and a major player in Ibuprofen. It has forward-integrated this vertical to the pharmaceutical segment with end products such as Ethyl Acetate, IBB, MCA and Acetyl Chloride used as key raw materials for Ibuprofen. It plans to explore its presence in other industries such as paints, flexible packaging and glass. In line with this approach, it has added many MNC giants to its customer base.
With a presence in 56 countries, IOLCP has established itself as a major player in Ibuprofen with above 30% of the global capacity. It is the only backward-integrated company in the world and largest Ibuprofen producer (12,000 TPA) that manufactures all intermediates and key starting materials at one location. It has augmented its pharma business by moving up the value-chain with entry into lifestyle drugs for pain management, anti-depressant, anti-diabetic, anti-platelet and anti-convulsion. IOLCP’s Ibuprofen plant is USFDA and EUGMP certified by the National Institute of Pharmacy and Nutrition, Hungary. It contributes 85% to the total revenue of its Pharma division.
Active Pharmaceutical Business (API) are Ibuprofen (Pain Management); Metformin Hydrochloride (Anti Diabetic); Lamotrigine Fenofibrate (Anti Convulsant); Clopidogrel Bi Sulphate (Anti Platelet) and Fenofibrate (Anti-cholesterol). Presently, 6 API’s are already commercialized and 10 API’s are in the advance stage of development. It has a 17 MW power generation plant for captive consumption with adequate backups for trouble-free operations. Its R&D lab is DSIR approved and is fully equipped to validate the existing processes.
Equity Capital & Reserve
The Company has an equity capital of Rs56.89 crore and reserves of Rs417.45 crore. The promoters hold 41.89% of the equity capital, which leaves 55.98% stake with the investing public. Not to forget, FIIs hold 1.75% stake in this company.
For FY19, its PAT soared 754.51% to Rs236.70 crore from Rs27.70 crore on 68.37% higher sales of Rs1685.33 crore fetching an EPS of Rs42.11 and cash EPS of Rs52.77. Recently it has posted robust numbers. In Q1FY20, PAT zoomed 492.09% to Rs85.32 crore from Rs14.41 crore on 35.77% higher sales of Rs496.12 crore fetching an EPS of Re15 and Cash EPS of Rs16.7. With no capacity addition happening globally, price has tightened due to supply demand mismatch. At the end of FY18, the demand for Ibuprofen was for nearly 35,000 TPA and the global capacity was at roughly 28,000 TPA. IOLCP is supplying 12,000 TPA. BASF has planned a mega plant for Ibuprofen in Germany which is going to come live in 2022. That means demand of Ibuprofen is increasing very fast and if new capacity will come in 2022 from BASF it will not have any impact on prices.
• Company has received Environment Clearance accorded by the Ministry of Environment, Forest & Climate Change, Government of India, New Delhi for expansion of Chemicals and Active Pharmaceuticals Ingredients (APls) manufacturing unit of the Company at village Fatehgarh Channa, Barnala (Punjab).
• On 15th October, the Company has made a pre-payment of Term Loan by Rs22.11 crore to bank in addition to its Scheduled Repayments. With this, the Company has pre-paid the Term Loan of aggregate of Rs161.44 crore till date (i.e.Rs141.39 crore during the Current FY and Rs20.05 crore in Previous FY). Accordingly, the principal amount of Term Loan reduced and now stood at Rs66.02 crore.
• The Company has received a communication from US Food & Drug Administration (FDA) with respect to an inspection conducted by USFDA of Ibuprofen manufacturing facilities located at Trident Complex, Mansa Road, Barnala, Punjab from 05.08.2019 to 09.08.2019. FDA has concluded that inspection is “closed” under 21 CFR parts 20.64(d) (3). The Company has received USFDA approval for next three years.
IOLCP is expanding its API product portfolio and improving cost competitiveness through efficient manufacturing processes and systems and growing relationships with major Indian and foreign generic companies for the sale of APIs. Its APIs are exported worldwide and key markets include Europe, Latin America, Africa and the Middle East. Ethyl Acetate has varied uses in different industries like pharmaceuticals, flexible packaging and printing ink manufacturing, paints and adhesives, etc. Its key markets in chemicals are African countries, Middle East, SAARC countries and Russia. All its products are in demand. Its Ibuprofen plant is running at 100% capacity and due to backward integration it will enjoy higher margin compared to other peers.
We believe that IOLCP is an opportunity in a decade and it certainly is a potential multibagger.
Currently, the stock is trading at just 3.7x. Looking at the trend we are quite bullish on IOLCP. Investors can accumulate this share with a stop loss of Rs165 for an upper target of Rs300-375 in next 18 to 24 months.
(Disclaimer: The views expressed herein are based on publicly available information and other sources believed to be reliable. The information contained in this document does not have regard to specific investment objectives. Neither IE&M nor any person connected with the organisation, accepts any liability arising from the use of this document.)