Bright prospects priced in

Last Updated: Thu, Aug 23, 2012 22:51 hrs

The Shasun Pharmaceuticals stock spurted 20 per cent this month on the back of robust June quarter results and institutional buying. Sundaram Mutual Fund also recently hiked its stake in the firm to 5.2 per cent from 4.67 per cent. The company, which declared its June quarter results earlier this month, recorded a 102 per cent jump in net profit over the year-ago period.

Going ahead, Ashish Rathi of Equirus Securities believes, there is high visibility of sustained growth on the basis of long-term supply contracts both in the contract research and manufacturing services (CRAMs) and the active pharmaceutical ingredient (API) divisions. This will help the company, which is one of the largest makers of Ibuprofen (pain killer), grow its sales and net profit by an annual rate of 17 per cent and 19 per cent, respectively over FY12-FY15. The company, which had revenues of Rs 1,067 crore in FY12, has an ambitious target of doubling revenues by FY15. While revenues and profitability are likely to improve, the spurt in the stock this calendar year (up 232 per cent) leaves little room for major upsides in the immediate term. Hence, investors with a longer term perspective could consider on correction.

Strong quarter
A robust growth in revenues and margin expansion helped the company double its net profit for the quarter ended June. Revenue growth of 32 per cent year-on-year was in line with expectations, driven by its API and CRAMS businesses, which grew 30 per cent apiece. The sharp jump in operating profit and margins for the company was largely on account of increased Telaprevir sales by its UK subsidiary to the American biotech company, Vertex. The drug, which was co-developed by Vertex, is used to treat Hepatitis C viral infection and was approved for sale by the US Food and Drug Administration (FDA) in April last year. The high margin drug helped the UK subsidiary increase its Ebitda (earnings before interest, taxes, depreciation and amortisation) margins from 16.8 per cent in the year-ago quarter to 28.4 per cent in the June quarter. This helped the overall margins of Shasun go up to 15.9 per cent from 8.4 per cent a year ago.

Brokerage house Networth expects the company to deliver higher margins on account of improving operating leverage with robust orders being executed on higher capacities.

Improved prospects
Increased supplies of Telaprevir is likely to aid revenue growth and margins for the company. The drug launched last year in the US is expected to fetch the innovator, Vertex, about $2 billion in annual sales. Being a key supplier, Shasun is likely to ride the benefit of increased volumes.

In addition, doubling of growth in the formulation CRAMS business and commencement of the company’s new API facility in the March 2013 quarter is likely to deliver progressive growth in subsequent quarters, says Surya Narayan Patra of Systematix Shares and Stocks in a post-results note. In the medium term, incremental CRAMS revenue from a long-term API supply contract for a phase III product and progress on its development pipeline (13 phase III projects) would drive value growth for the company, he says.

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