Date – 29th October, 2018
Price – Rs. 156.25
About the Company
Hikal Limited (“Hikal” or the “Company”) offers solutions across the life sciences value chain. The Company is in the business of supplying research services, active ingredients and intermediates to global pharmaceuticals, animal health, biotech, crop protection and specialty chemicals companies.
Pharmaceuticals – Hikal serves pharmaceutical companies from early lead generation till commercial launch of chemical entities.
The Company is a leading custom development and active pharmaceutical ingredient (API) manufacturing partner of global innovator companies.
The Company partners with global pharmaceutical companies in: contract research and custom manufacturing of intermediates and APIs.
Crop Protection – offers world-class active ingredients for crop protection companies. Product range includes herbicides, insecticides and fungicides that meet stringent regulatory and quality standards.
- Custom Synthesis and Contract manufacturing of Agrochemicals, Intermediates and Specialty Chemicals
- Strong Japanese Presence
Research & Technology – Process development, new product development, contract and custom development.
Hikal has five manufacturing facilities in India at Maharashtra (Taloja and Mahad), Gujarat (Panoli) and Karnataka (Jigani) and a Research & Technology center at Maharashtra (Pune).
Business Model
| Pharmaceuticals | Crop Protection | Research & Development |
| · Contract & Custom Manufacturing
· Generics · Human Health · Animal Health · Strong Relationships with Innovators, Mid size Pharma, Biotech & Generic Companies |
· Custom Synthesis and Contract Manufacturing of Agrochemicals, Intermediates, Biocides and Specialty Chemicals
· Preferred Supplier to Top Crop Protection Companies |
· Offers Right Combination of Capabilities, Quality combined with significant Cost Arbitrage
· Full development & Scale up Service to Innovator Companies , Generic & Biotech Companies |
Financial Position
| Particulars | FY14 | FY15 | FY16 | FY17 | FY18 |
| Revenue (In Rs. Cr.) | 863.27 | 873.43 | 927.49 | 1,017.37 | 1,300.56 |
| Growth | – | 1.18% | 6.19% | 9.69% | 27.84% |
| EBITDA (In Rs. Cr.) | 239.11 | 183.99 | 182.68 | 201.88 | 246.21 |
| EBITDA Margin | 27.70% | 21.07% | 19.70% | 19.84% | 18.93% |
| EBIT (In Rs. Cr.) | 184.07 | 119.80 | 115.40 | 132.74 | 160.62 |
| EBIT Margin | 21.32% | 13.72% | 12.44% | 13.05% | 12.35% |
| PBT (In Rs. Cr.) | 116.05 | 59.75 | 53.19 | 84.48 | 111.49 |
| PAT (In Rs. Cr.) | 63.90 | 40.41 | 41.20 | 67.72 | 77.23 |
| PAT Margin | 7.40% | 4.63% | 4.44% | 6.66% | 5.94% |
| EPS (In Rs.) | 5.18 | 3.28 | 3.34 | 5.49 | 6.26 |
| EPS Growth Rate | – | -37% | 2% | 64% | 14% |
| Historic P/E (Closing Price of 31st March) | 12.10 | 28.24 | 23.39 | 25.83 | 21.87 |
| CURRENT P/E (based on price of 26th October – Rs. 146) | 23.31 | ||||
| D/E | 0.93 | 0.81 | 0.83 | 0.91 | 0.86 |
| Interest Coverage | 3.52 | 3.06 | 2.94 | 4.18 | 5.01 |
| ROCE | 18.88% | 12.42% | 11.18% | 11.49% | 12.92% |
| ROE | 22.99% | 11.22% | 9.43% | 13.96% | 16.66% |
*Hikal split its equity in the ratio of 10:2 on 27 February 2015. EPS and P/E numbers are adjusted to reflect the effect of split.
*Hikal issued bonus share in the ratio of 1:2 on 22 June 2018. EPS and P/E numbers are adjusted to reflect the effect of issue.
Quarterly Performance
| Quarterly Results | Q1 FY 2018 | Q2 FY 2018 | Q3 FY 2018 | Q4 FY 2018 | Q1 FY 2019 | Y-o-Y % |
| Revenue | 262.71 | 292.27 | 350.63 | 390.49 | 325.60 | 23.94% |
| EBITDA | 49.67 | 53.77 | 66.86 | 71.45 | 60.64 | 22.09% |
| EBITDA Margin | 18.91% | 18.40% | 19.07% | 18.30% | 18.62% | |
| PAT | 13.32 | 15.33 | 23.24 | 25.34 | 15.93 | 19.59% |
| PAT Margin | 5.07% | 5.25% | 6.63% | 6.49% | 4.89% | |
| EPS | 1.08 | 1.24 | 1.88 | 2.06 | 1.29 | 19.59% |
B2B Player in Pharma and Agro-Chemical
Hikal is a B2B player that provides active ingredients, intermediates and R&D services to global pharmaceuticals, animal health, crop protection and specialty chemicals companies. For FY 2018, pharma and crop protection accounted for 58% and 42%, respectively, of revenues. Animal health business accounts for 8-10% of overall pharma revenues. In crop protection, 70% of revenues are derived from contract research & manufacturing (CRAMs) with remaining from proprietary products.
Strong Parentage
The Company has been promoted by the Kalyani group. Hikal is an associate of Kalyani Investment Company Limited (Kalyani Group), which owns 31% shares in the Company.
Pharma: Healthy Volumes Drive Growth
Hikal’s pharma business posted healthy 12.2% revenue CAGR over FY 2014-2018 (24% in FY 2018) driven by
- Strong volume growth in legacy products (Gabapentin) (The Company is the world’s largest supplier of Gabapentin with ~30-35% market share
- New product launches in niche categories. The Company filed 3 DMFs (Drug Master Files) (Butorphanol, Apixaban & Celecoxib) as part of its proprietary portfolio in the pharmaceutical division in FY 2018.
- Hikal plans to file 5-6 DMFs every year.
Growing Demand for Contract Development and Manufacturing Business
Owing to the growing demand for generic medicines and biologics, capital-intensive nature of the business, and complex manufacturing requirements, many pharmaceutical companies have identified the potential profitability in contracting with a CMO (contract manufacturing outsourcing) for both clinical and commercial stage manufacturing.
The biggest factor driving the growth of CMOs in the pharmaceutical industry is the growing need for state-of-the-art processes and production technologies, which have proven highly effective in meeting regulatory requirements. With the pharma demand continuing to rise and pressure from government to keep costs as low as possible, CMO is becoming more popular alternative to investing in internal capabilities and capacity.
One of the Key Beneficiaries of China Supply Constraint
Due to ongoing environmental issues in China, a number of chemical, intermediate and API plants have shut down. Restoration of this capacity is also likely to take longer. Most customers sourcing raw materials from China are now looking for alternative long term sustainable sources. As per the Management, the Company is well poised to grab this opportunity due to its strong track record and capability.
Management Guidance –
- The Company has guided for 17-20% revenue growth in the next two years with 19-20% of EBITDA margins.
- According to the management, currency tailwinds are also likely to support revenue growth and margins in the near term.
- The Company is targeting 15-16% RoCE.
- Capacity Expansion – Hikal expects Rs. 250 Cr. of capex over the next 18-24 months mainly for capacity expansion.
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