On a launch spree
INST’s outperformance vis-à-vis domestic industry continued in Q1FY20. Revenue grew by 12.4% YoY driven by formulation business (particularly new launches). The performance is expected to sustain going forward as well, led by its strong product pipeline. INST is in the midst of transition from a me-too agrochemical manufacturer to a research-driven integrated player with focus on creating brands (+100 branded and +21 technical products) with differentiated products. It is working on multiple fronts (proprietary offpatent, inlicensing and new discovery) to enrich its product portfolio. Timely execution of this strategy can enable INST to sustain high growth rate over the medium term. INST’s revenue from new launches (8 in FY19 and pipeline of 35 products) is expected to neutralize the expected revenue loss from FY22E due to ban of DDVP and Phorate. Backward integration for key inputs will aid in securing supplies for its Maharatna range of products apart from increasing the sale of technicals. We estimate 11% revenue CAGR and 7% PAT CAGR over FY19-21. Maintain Buy with target price of Rs 887 based on 13x FY21 earnings.
On a launch Spree: The company has launched 4 new products in 1Q and plans to launch 3 products each in August & Rabi season. INST is on a launch spree to broaden its product portfolio and limit the impact of revenue loss that may happen post the ban on usage of DDVP and Phorate from 1st Jan 2021. The company had launched 8 products in FY19 and further plans to launch 8-10 new molecules in FY20 and FY21 each. Out of targeted 10 new launches in FY21, 4-5 are expected to be inlicensed from the Japanese players.
Medium term outlook continues to be exciting: The broad strategy on product portfolio side continues to be quite impressive and is driven by new launches and capacity expansion. These strategies, if executed well, can lead to sustained double digit growth rate for INST in the medium term.
* With investment of Rs 2 bn, INST plans to expand technical capacities at Chopanki & Dahej plant and a greenfield EOU at Dahej for exports.
* INST is working on ~10-12 proprietary off-patent products. Proprietary offpatent products, though difficult to develop, are the ones with good revenue and profitability prospects for a period of 3-4 years.
* The company is primarily focusing on high potential molecules which can be inducted into its Maharatna category.
* On the exports side as well, strategies are being implemented to significantly scale up export of technical (along with formulations). GLP data for 8-10 new technicals will be generated this fiscal. It is also looking to set up an EOU for exports with an investment of INR 250 mn.
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