Equity Research Report: Sakar Healthcare

Summary

Sakar Healthcare Ltd is engaged in manufacturing of pharmaceutical formulations in the form of liquid injectables, tablets/ capsules, oral liquid syrups, dry powder injectables and syrups. Presently, its domestic sales accounts for 31% of revenues and exports accounts for the rest of 69% of revenues. It is one of the fastest growing pharma company in India.

SHAREHOLDING PATTERN:

Company issued preference shares to FII (A Swiss based HBM Healthcare Investments; a global healthcare private equity invested Rs 14.85 crore in Sakar Healthcare through its wing Cobra India Mauritius limited). HBM Healthcare Investments through COBRA actively invests in the human medicine, biotechnology, medical technology and diagnostics sectors and other healthcare related area. It invests 17% of its total investments into Oncology (which is third largest area of its investment). HBM takes an active role and assumes entrepreneurial responsibility together with the management team.This 14.85CR was used for setting up of new manufacturing units pertaining to anti-cancer (oncology) Project. 

PROJECT:

Anti-cancer (oncology) Project

• Anti-cancer (oncology) is a Treatment to stop or prevent cancer. Since cancer is the second largest cause of death in the India, the Indian market is characterized by a huge demand for cancer drugs.

• Standalone oncology unit would include-

  • FORMULATION: Technology enhanced Lab (R&D, Analytical Development & formulations & development), It started with Research laboratories on September 22, 2021

  • INJECTIONS: Liquid & lyophilised injections

  • API

  • Robust Manufacturing unit for finished formulation viz Oral Solid dosage form.

• Total cost of this project is Rs 145.76 CR out of which 14.85 CR was raised from FII, the company has been raising debt for the same reason, In FY21 SAKAR showed borrowing of 42.59 CR (Secured by PPE & company’s car) & in Q3 FY21 it raised borrowing by 23.44 CR. (Credit rating: [ICRA]BBB(Stable))

FINANCIALS (QoQ)

QoQ BASIS

• Net profit of Sakar Healthcare rose 417.34% to Rs 8.95 crore in the quarter ended March 2022 as against Rs 1.73 crore during the previous quarter ended March 2021. Sales rose 68.77% to Rs 36.59 crore in the quarter ended March 2022 as against Rs 21.68 crore during the previous quarter ended March 2021.
• For the full year,net profit rose 42.13% to Rs 15.18 crore in the year ended March 2022 as against Rs 10.68 crore during the previous year ended March 2021. Sales rose 35.35% to Rs 128.23 crore in the year ended March 2022 as against Rs 94.74 crore during the previous year ended March 2021

YoY BASIS

• Sakar’s topline for the fiscal 2020-21 grew by 14.17% to Rs. 94.74 crores from Rs. 82.98 crores compared with the same period a year ago primarily driven by exports to Asian & African countries.
• EBITDA increased by 11.79 % to Rs. 24.10 Cr. from Rs. 21.56 Cr.
• Net profit increased by 11.11% to Rs. 10.69 crores from Rs. 9.62 crores.

KEY FINANCIAL INDICATORS: 

RESEARCH & DEVELOPMENT:

Sakar's R&D team has been working constantly on its ongoing oncology project, Total R&D expenditure has increased from 3.36 CR to 6.97 CR. 

FUTURE PROSPECTS

• Increase High Margin ExportsSakar's exports have grown by over 2.3 times in the last three years and is expected to continue to grow at a fast clip as the driven by company's push into regulated markets. The company last year received EU GMP for its Liquid & Lyophilized injectable facility which will open up regulated markets for it. Exports contribute 80% of company's EBITDA. In addition, with commencement of Oncology plant exports will get further fillip thus positively impacting margins across the board
• Oncology (anti-cancer) unit to drive exponential growthEntry into the fastest growing therapeutic segment with high barriers to entry will give a big fillip to company's growth for the next many years. This state of the art manufacturing facility has been designed according to the USFDA standards and will help the company to sell its Onco products into regulated markets.

CREDIT STRENGTHS:

• Established track record of over 17 years in the pharmaceuticals formulation industry: The company has had established operations of more than 17 years in manufacturing pharmaceutical formulations. SHL manufactures generic formulations in 23 therapeutic categories, such as antibiotics, antihistamine, antifungal, cough preparation, and vitamins, among others.

•  Diversified product portfolio and geographic presence: The company’s product profile is diversified, comprising liquid injectables, tablets/ capsules, oral liquid syrups, dry powder injections and syrups. SHL’s product portfolio includes approximately 300 product registrations for various therapeutic segments, such as antibiotics, anti-cold drugs, anti-malarial, and multi-vitamins, among others

CREDIT CHALLENGES:

• Risks associated with stabilisation and successful scale-up of operations for recently completed and ongoing debt-funded project for manufacturing oncology drugs: SHL has undertaken a debt-funded capital expenditure (capex) for setting up a new plant to manufacture oncology drugs. The formulation unit achieved commercial operations in October 2021 whereas the operations of API unit is expected to commence in next six months and the injectable unit is expected to commence from December 2022.

• Profitability remains susceptible to fluctuations in raw material prices: The company’s major raw materials include APIs, such as Paracetamol, Artemether and Diclofenac; and procures it from domestic suppliers all over the country. SHL’s profitability, hence, remains susceptible to such raw material price fluctuations. The operating margin during H1 FY2022 moderated by 238bps over full year FY2021 on account of the inflationary raw material regime, wherein the ability to fully pass on such costs remain critical to protect margins.

OBSERVATION:

Increase in revenue is expected in upcoming quarters from Oncology formulation & API unit, commencement of Oncology API & Injectables will start after September’22 & December’22. A significant improvement in the operating income of the company on the back of scale-up of the new plant, while maintaining healthy profitability and debt coverage indicators is expected.