SHARETIPSINFO >>Research Reports >>KOPRAN LIMITED >> (12-09-2013)

Theme – Attractive valuation and defensive bet.

COMPANY OVERVIEW:
Kopran is the group company of Parijat Enterprises. Kopran is currently an integrated Pharmaceutical company manufacturing a large range of products. It manufactures both Active Pharmaceutical Ingredients and Finished Dosage Forms.

Latest Update:

1. Kopran Ltd. has launched a new brand "SPARKLE" in the FMCG category.
2. Kopran has entered into an Agreement with Walt Disney for the best offer in the toothpaste category – Buy SPARKLE Family Toothpaste and Get a Disney DVD worth Rs. 399/- FREE with every pack.
3. Finished Dosage Forms has Manufacturing Facilities built up area of 11,432 sq. mtrs. On a plot of 8 Acres which is located at Khopoli, Raigad District, Maharashtra.
4. Active Pharmaceutical Ingredients has Manufacturing facility which is built up area of 11,600 sq. mtrs on a plot of 9 Acres and it is located at Mahad, Raigad District, (Maharashtra).

Business area of the company

1. Finished Dosage Forms:

The company covers the needs of International markets with a range of more than 100 dosage forms including Tablets, Capsules, Dry Powder, Suspension and Injectables. Manufacturing Facilities has built up area of 11,432 sq. mtrs on a plot of 8 Acres, Located at Khopoli, Raigad, (Maharashtra).

2. Active Pharmaceuticals:

Kopran manufactures a range of APIs including Sterile Cephalosporin in its state of art facility. Manufacturing of any Sterile API needs excellent facility and quality systems.
Sterile API, the company can provide a range of Specialty products which include Macrolides and Cardiovascular range among others.

3. Research & Development:

Kopran Research Laboratories Ltd. (KRLL) is an emerging research organization with particular interests in the areas of drug discovery, polymer technology and synthesis of new molecules. KRLL is a 100% subsidiary of Kopran Ltd.

4. Consumer Healthcare:

The company plans to launch many more health & hygiene products with SPARKLE as umbrella brand.

Peer Comparison

INDUSTRY OUTLOOK:
The Indian pharmaceutical industry is expected to grow by 10-12 per cent during 2013-14, says a recent study by ICRA. The main driver for growth will come from generic opportunities in the US. Generic opportunities in US will continue to drive revenue growth for Indian pharma companies. Drugs worth $80 billion are expected to go off patent over the next four to five years. Indian companies have lined up strong product pipelines of pending abbreviated new drug applications (ANDAs). Acquisitions by Indian companies to add technical capabilities and focus on strengthening branded business (albeit on a small scale) are also likely to drive growth going forward as companies feel the need to diversify. The impact of new drug price control order (DPCO) though expected to be limited, could also get offset by volume expansion and efforts of industry participants to take price hike in rest of the portfolio.

INVESTMENT RATIONAL:

1. Stock trading below book value.
2. Debt/ Equity ratio is 0.7. Company is not highly leveraged.
3. Kopran has entered into an Agreement with Walt Disney for the best offer in the toothpaste category.
4. Finished Dosage Forms has Manufacturing Facilities built up area of 11,432 sq mtrs. On a plot of 8 Acres which is located at Khopoli, Raigad District, Maharashtra.
5. Active Pharmaceutical Ingredients has Manufacturing facility which is built up area of 11,600 sq. mtrs on a plot of 9 Acres and it is located at Raigad District, Maharashtra.

Risk:

1. Regulatory issues if any crops up can be negative for the stocks.
2. Export earnings could get impacted due to the adverse currency fluctuations.
3. Debt servicing cost have increased over the last four years.

TREND OF SHAREHOLDING PATTERN IN LAST 3 QUARTER:
 

FINANCIAL:

Key Highlights:

1. Total Income grew at CAGR of 14.7% over the last 4 years to Rs 252 Cr.
2. PBIDTA increased at CAGR of 9.6% over the last 4 years to Rs 36 Cr. Raw material cost too has increased. But company maintained steady increase in margins.
3. PAT increased at rate of 6.5% in last 4 years to Rs 2.8 Cr. Increase in debt servicing cost led lower increase in profitability.

RATIOS:

 
Key Highlights:

1. EPS consistently at rate of 6.5% over the last four years.
2. PBDITA margins improved by over 190 bps in last four years to 16.4%.
3. NPM margins increased by 120 bps in last four years to 5.99%.
4. Interest cover remained comfortably at 1.19.

COMPARISION OF Q4FY2013 WITH Q4FY2013:

Key Highlights:

1. Total Income grew by 17.75% to Rs 60.76 Cr in Q1FY14 (YoY).
2. PBIDTA grew by 8.4% to Rs 8.9 Cr in Q1FY14 (YoY).
3. PAT grew by 10.7% to Rs 2.79 Cr in Q1FY14 (YoY).

VALUATION &OUTLOOK:
We feel the stock is undervalued. With the FY13 EPS of Rs 3.1 and FY14E EPS of Rs 4, stock is trading at P/E of 3.5 to FY14E EPS. The stock is heavily discounted compared to its peer. We value the stock at 5X. The Fair Value comes at Rs 20.
The outlook remains good and growth is expected to be robust in coming quarters. The new product launches and export earnings will be positive for the stock.
While valuation we have conservatively valued the company and taken P/E 5 because of the small size and debt risk the company has. 

CONCLUSION:
Investors with 6-8 months time horizon could take position. Downside in the stock remains limited.

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