Pharmaceuticals September 26, 2012 CMP Rs. 700.4 BSE Code 506414 BSE ID DIL High/Low 1Y (Rs.) 748.2 / 373.9 Average Volume (3M) 579.8 Market Cap (Rs. Cr.) 161.1 Shareholding % Jun-12 Mar-12 Promoters 63.20 38.14 DIIs # - - FIIs # - - Public & Others 36.80 36.80 Stock Chart ( Relative to Sensex) 180 130 80 26-Sep-11 26-Mar-12 26-Sep-12 DIL Sensex Stock Performance (%) 1M 6M 1Yr DIL Ltd -3.3 38.4 61.7 Sensex 4.8 9.3 12.8 Financials FY10 FY11 FY12 Revenue 67.9 77.8 118.9 Y-o-Y 1.4% 14.5% 52.9% EBITDA 14.6 20.8 30.7 Y-o-Y 32.6% 42.2% 47.5% Net Profit 11.5 25.3 22.3 Y-o-Y 97.2% 119.9% -12.1% EPS (Dil.) 50.24 110.45 97.06 EBITDA Margin 21.6% 26.8% 25.9% Net Profit Margin 17.0% 32.6% 18.7% P/E(x) 13.9x 6.3x 7.2x Financial year ends at March 31 on consolidated basis. All figures in Rs. crore except for per share data # FIIs- Foreign Institutional Investors # DIIs- Domestic Institutional Investors DIL Ltd. Company Overview Founded in May 1951, DIL Ltd. (formerly known as Duphar-Interfran Limited) specializes in contract research, custom synthesis and process research and development activities for global pharmaceutical companies. Its state-of-the-art manufacturing facility is fully equipped with modern machinery to offer services in industrial biotechnology. On a consolidated basis, the company conducts its operation through four business lines namely chemicals, research and development, treasury and entertainment. Except chemicals business, all other are operated under the DIL. Chemical business, which is the core activity of the company, is operated through its subsidiary, Fermenta Biotech Ltd (FBL). Company Fundamentals Chemical segment pushed up revenue in FY12 On a consolidated basis, the company s total revenue grew 52.9% Y-o-Y to Rs. 118.9 crore in FY12. This was mainly due to 60.2% sales growth in chemical segment. Hence, the contribution of chemical segment to total revenue went up from 64.2% in FY11 to 78.2%. The property segment saw a marginal growth of 4.9% to Rs. 12.9 crore while treasury income declined 32.2% to Rs. 16.4 crore during the period under review. Entertainment and research & development segment did not generate any income in FY12. The current financial year was not good for the pharmaceutical industry from the regulatory aspect as there was hike in VAT and excise duty along with withdrawal of Duty Entitlement Pass Book Scheme. So, despite rise in sales, regulatory changes, rise in finance cost, drop in other income and rise in extraordinary items dragged the net profit by 12.4% Y-o-Y. Associates and Joint Ventures DIL has sold 30% equity holding in Evotec (India) Private Limited (associate company) for Rs. 11.3 crore to Evotec AG resulting in a gain of Rs. 9.1 crore. DIL holds 47.15% equity capital of Health and Wellness India Pvt. Ltd (HWIPL). HWIPL is in the business of providing services on sporting activities, health awareness and health education. The company has formed a joint venture, VasKo Glider, incorporated in Czech Republic, where they hold 50% stake. The JV is in the business of development and manufacturing of wheelchairs based on Levitation Movement Technology. This technology was acquired from the joint venture partner under the technology transfer agreement with effect from March 18, 2005. Future plans In FY12, White Stripes, the entertainment division has got into a business alliance with a leading entertainment company to present and co-produce the remake of old Hindi film Chupke Chupke. The company has executed agreements with a well known director, writers and cast for the remake of the film. Key Strengths - Pharmaceuticals products - 15 years of experience in the pharmaceutical industry - De-risk business model through diversification Initiative of the BSE Investors Protection Fund -1-
Company Business DIL, together with its subsidiaries, Fermenta Biotech Limited (FBL), Fermenta Biotech (UK) Ltd, Aegean Properties Limited, G.I. Biotech Private Limited, CC Square Films Limited collectively referred to as the Group, is in the business of manufacturing and selling of chemicals, primarily bulk drugs and enzymes, renting property, entertainment and utilization of surplus funds for its treasury operations. Year Milestones 1951-1963 Toll manufacturing for the pharmaceutical and cosmetics industries. 1963 The company established a JV with Philips Duphar for manufacturing and marketing of pharmaceutical products in India. 1980 Philips Duphar was taken over by Solvay Pharmaceuticals. 1986 Fermenta Biotech Ltd. was founded as a subsidiary company to complement and segregate DIL s capabilities in biotechnology. 1987 1995 2000 Fundamental research was initiated as part of Solvay s research efforts. A full-fledged laboratory was set up as per GLP requirements and accredited by the Department of Scientific & Industrial Research. Crocin, which went on to become the most popular brand of paracetamol in India, was divested to SmithKline Beecham. The company realigned its business to focus sharply and exclusively on custom synthesis and process R&D by de-merging its pharmaceutical formulation business in favour of Solvay. Source: Company s website Pharmaceutical and Biotechnology FBL, the main subsidiary of DIL for chemical segment, manufactures cholecalciferol (Vitamin D3) for further applications in pharmaceutical, food, veterinary and feed industries, worldwide. The cholecalciferol solutions are used in human food supplements. Vitamin D3 resins in oil and Vitamin D3 500 feed grades are for use in animal feed supplements. Vitamin D3 revenues grew from Rs. 40 crore in 2010-11 to Rs. 65 crore in FY12, marking an impressive 62.5% growth. Exports from Vitamin D3 accounted for 75% of total Vitamin D3 earnings. The increase in export earning heralded new geographies and regulated markets. In biotechnology, the company in FY11 developed the PS 150 enzyme to convert Penicillin G into 6 APA. During FY12, the company commercialized and exported it to many countries, generated repeat orders and reported revenues with high margin. Sales from this product segment accounted almost 9% of the company s revenues. The biotech lab and new spray-drying facility expected to further enhance its research and development capabilities. Consolidated Segment wise revenue Segment (in crore) 2009-10 2010-11 2011-12 Chemicals 48.3 65.5 104.9 Property - 12.3 12.9 Treasury 21.1 24.2 16.4 Research & Development 8.7 - - Total 78.1 102 134.2 Source: Company s Balance sheet. Initiative of the BSE Investors Protection Fund -2-
Industry Overview The Indian pharmaceutical industry ranks third in volume and 14th in value globally and produces around 20 to 24% of the global generic drugs. The industry is estimated to have generated revenue growth of 15% in the previous year. Projects worth more than $1.2 billion are under implementation, indicating sizable investments by Indian pharmaceutical companies. The industry s growth is attributed to a growing middle-class population, rapid urbanization, lifestyle related diseases and increasing awareness about health insurance. Besides, the product patent regime has provided ample support to the industry to sustain its growth pace, despite the global downturn. The key trends which the industry is showing are Increase in the strength of field force to get more market share. Indian companies are looking for strategic tie-ups with MNCs to further strengthen their product portfolio. Slowly but steadily increasing their presence in rural India to tap the bottom of the pyramid. Changes in lifestyle and food habits, aided by higher disposable income have caused an unprecedented rise in chronic diseases such as cardiovascular (CVS), diabetes, oncology and central nervous system (CNS). After witnessing a slump in demand and manufacturing activities due to the impact of global recession in FY09, the Active Pharmaceutical Ingredient (API) market rebounded with a significant growth worldwide. The API market is likely to register a compounded annual growth rate (CAGR) of around 8% during 2012-15. India and China have emerged as major API manufacturing hubs. APIs contributed about 40% of the value of the total value of the Indian Pharmaceutical Industry, valued at $11-12 billion in 2011-12. About 85-90% of the APIs manufactured in India is exported. API export from India is expected to grow in regulated markets like the U.S. and Europe by 60-70% in the coming years. The enzyme market for industrial enzymes was estimated at $3.90 billion in 2011 and is expected to grow at a 9.10% CAGR to $6 billion by 2016. In 2011, the industrial enzyme market in India stood at $441.45 million and is expected to reach $751 million by 2016. With urban population now growing, opening of public-private relationships and opportunities, and the globalization of technology and capital, the need for clean and affordable water, waste water management and its reuse are viewed in an analytical manner. Only 60% of industrial water is treated while 26% of domestic water is treated in India. India s per-capita availability of fresh water has declined from 5177 cubic meters in 1951 to 1820 cubic meters in 2001 and this decline is expected to sustain. (Source: Company annual report) Competitor Analysis We have compared the company with its close peers. Company Year End CMP* M Cap Revenue EBIT Margin EPS P/E DIL Ltd. Mar-11 700.4 161.1 118.9 19.3% 64.0 7.2x Alembic Mar-12 16.0 212.9 116.9 - -0.91 - Bal Pharma Mar-12 21.0 22.2 139.7 8.4% 7.46 2.8x Source: BSE, Market cap and Revenue in Rs. crore, *CMP as on 26 Sep 2012 Initiative of the BSE Investors Protection Fund -3-
Summary Financials Particulars (Rs crore) FY10 FY11 FY12 Net Sales 48.0 64.3 101.3 Other Op. Revenue 19.9 13.5 17.6 Total Revenue 67.9 77.8 118.9 Growth (%) 1.4% 14.5% 52.9% Cost of Goods Sold -18.9-22.1-44.2 Gross Profit 49.1 55.6 74.6 Employee Costs -14.1-14.0-18.2 Other Expenditure -20.3-20.8-25.7 EBITDA 14.6 20.8 30.7 Growth (%) 32.6% 42.2% 47.5% Depreciation -4.4-4.2-7.8 EBIT Profit 10.2 16.7 23.0 Finance cost -1.4-1.5-3.9 Other Income 6.3 21.2 14.3 Exceptional Items 0.0 0.0 0.0 PBT 15.1 36.3 33.4 Growth (%) 138.4% 140.8% -8.2% Income Tax -3.3-8.4-6.4 Profit after Tax 11.8 28.0 27.0 Extra Ordinary Items -0.3-2.7-4.7 Net Profit 11.5 25.3 22.3 Growth (%) 97.2% 119.9% -12.1% Rep. Basic EPS 50.24 110.45 97.06 Rep. Diluted EPS 50.24 110.45 97.06 Equity Capital 2.3 2.3 2.3 Face value 10 10 10 Ratio Analysis FY10 FY11 FY12 Margins EBITDA Margin (%) 21.6% 26.8% 25.9% Net Profit Margin (%) 17.0% 32.6% 18.7% Valuation P/E (x) 13.9 6.3 7.2 P/BV (x) 1.9 1.4 1.2 Profitability ROCE (%) 10.2% 12.7% 14.2% RONW (%) 13.3% 21.9% 17.2% Solvency Ratio Debt/ Equity Ratio (x) 0.2 0.1 0.2 Interest Cover (x) 7.2 11.2 5.9 Initiative of the BSE Investors Protection Fund -4-
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