Hester Biosciences, 500% gain since Dharmesh Kant’s recommendation
Dharmesh Kant, who was then with IndiaNivesh, was the first to recognize the potential of Hester Biosciences, then a micro-cap.
His analysis of the fundamentals of the Company and buy recommendation were simply brilliant.
“Hester Biosciences Limited (HESTERBIO) is country’s leading diversified play on veterinary business. Through its state- of- the-art manufacturing facility at Mehsana district, Gujarat, it offers wide range of products and services. Products include vaccines for avian, swine and large animals, vitamin supplements and scientific diagnostic aides for disease diagnosis while services focus on seroprofiling for poultry flocks and mastitis control program for cattle (which help improve milk quality and quantity in buffaloes and cows).
Hesterbio stands on firm financials. Its revenue and net profit has grown at a CAGR of around 10% in last 5 years. Last two quarters has seen a remarkable turnaround. Q1FY15 saw sales rise by 45.62% y-o-y and PAT by 119% y-o-y along with improvement in profitability margins. PAT margin has been consistently improving sequentially over last four quarters from 10.78% in Q3FY14 to 18.63% in Q1FY15
9) The stock is currently available at P/BV of2.17x (ttm basis) and P/E of 13.60x (ttm basis) at cmp of Rs. 199.20. The company stands on a strong balance sheet having minimal long term debt at 0.25x of shareholder’s fund. Historically, it has funded its capacity expansion primarily through internal accruals.
10) Assuming the company is able to sustain its growth momentum picked up in last two quarters, we expect Hesterbio to deliver over 30% revenue growth in FY’15. Based on annualized PAT margin of 17%; its FY’15 EPS works out to be Rs 15. Historically, the stock price has traded in the range of 17x to 21x of P/E multiple (ttm basis). Valuing the company at near higher band of historical P/E multiple of 20x for FY’15 based on aforesaid assumption of high growth and stable profitability margins the target stock price comes at Rs 300.
We recommend buy and accumulate on ‘Hesterbio’ for a target price of Rs 300.”
Dharmesh Kant’s price target of Rs. 300 (then a 50% upside) was very conservative. The stock has surged from Rs. 200 to the CMP of Rs. 1176, putting massive gains of 500% on the table of its delighted shareholders.
Bill Gates compliments Hester Biosciences for developing life-saving vaccine at just 3 cents
Bill Gates addressed a distinguished audience comprising of Chief Ministers Chandra Babu Naidu, Yogi Adityanath and other dignitaries in which he singled out Hester Biosciences for praise.
“Diseases can wipe out flocks and herds, driving smallholders even further into poverty. For example, Newcastle disease can kill three-quarters of chickens in a flock during an outbreak. Through a partnership with Hester Biosciences, there is now a vaccine that costs just three cents a dose,” the Billionaire said.
“This disease is endemic to India’s swineherds and is the most frequent preventable cause of epilepsy in developing countries. It also kills 50,000 people a year,” he added in a grim tone.
The certificate of merit issued by Bill Gates in the august presence of Chandra Babu Naidu and Yogi Adityanath is very significant because it adds credibility to the work done by Hester Biosciences and also opens doors for it to be awarded big-ticket Government contracts.
The recognition and commendation by Bill Gates will also come handy when Hester Biosciences markets the vaccine against the dreaded Newcastle disease in other Asian and African countries.
— Hester Biosciences (@Hesterindia) November 27, 2017
|HESTER BIOSCIENCES LTD – KEY FUNDAMENTALS
|EPS – TTM
|LATEST DIVIDEND DATE
|16 NOV 2017
|BOOK VALUE / SHARE
[*C] Consolidated [*S] Standalone
|HESTER BIOSCIENCES LTD – FINANCIAL RESULTS
|PARTICULARS (Rs CR)
(Source: Business Standard)
Global market size of animal health care is $30 billion; Hester Biosciences is the second largest poultry vaccine manufacturer
Few are aware that the diminutive Company is the second largest poultry vaccine manufacturer in the Country.
Venkateshwara Hatcheries alias Venky is the largest.
Venky is also an illustrious multibagger.
Unlike Venky’s, Hester decided against entering the FMCG space and instead worked towards expanding its presence in poultry health products, large animal vaccines and large animal healthcare products.
Presently, Hester’s product basket comprises 45 live and inactivated vaccines in the poultry segment, four live and inactivated large animal vaccines along with numerous healthcare and diagnostic services.
It has a state-of-the-art R&D center in Kadi near Ahmedabad.
It is also accredited by the department of scientific and industrial research which has leveraged molecular engineering technology to develop a new generation of recombinant vaccines.
It is also notable that while the market size of the animal health products worldwide is pegged at around $30 billion, the Indian market is a mere $700 million.
This is literally chicken-feed but it also highlights the mammoth opportunity size that the vaccine companies are addressing.
High-margin large animal vaccines sales will boost both revenues and operating leverage: Karvy
The wizards at Karvy have been been tracking the fortunes of Hester Biosciences for a long time. They have been periodically recommending a buy even as Hester effortlessly takes out all the price targets.
In the latest report, Karvy has recommended a buy of Hester Biosciences with a target price of Rs. 1417. As usual, the price target is conservative and it wont be long before Karvy will have to revise it upwards.
Anyway, the logic is as follows:
“High-margin Large Animal Vaccines Sales to Boost Both Revenues and Operating Leverage
Domestic Brucella and PPR Vaccines Sales Drive Profitability:
A surprise and significant jump in domestic Large Animal Vaccines (LAV) sales – primarily Brucella vaccine and to smaller degree PPR vaccines – have led to considerable expansion in gross margin and EBITDA margin. LAV sales have increased from Rs.2.2 Mn in Q2FY17 to Rs.56.2 Mn in Q2FY18. During Q1FY18 LAV sales were Rs.4.9 Mn. Both Brucella and PPR sales during the quarter are attributed to tender orders from about 10 state governments.
Management believes that these orders are not only sustainable but will also increase in size in the future as more states start participating in issuing tenders. Competition is expected to be limited with about 2 firms for Brucella vaccine and about 3 firms for PPR vaccine.
Management believes that margins may expand further with rising LAV sales – both domestic and exports.
Slow Traction in PPR Exports from Nepal But is Expected to Ramp-up by End of FY18E and During FY19E:
Nepal plant has required the approvals from African Quality Control Lab, this enables the firm to participate and compete in the FAO tenders process.
Tendering by FAO has been slow leading to smaller PPR sales. Management says that they would quote PPR vaccine at a price higher than that in India and expects to be the lowest price bid. During H1FY18, Nepal facility had sales of Rs.19.4 Mn and a net loss of about Rs.19 Mn.
Management expects that in the near-to-mid term, PPR tendering would pick-up and that the financial health of Nepal plant would turn around.
Valuation and Outlook
We are introducing FY19E financials in this report. At CMP of Rs.1162, HBL is currently trading at P/E of 18.1x based on FY19E EPS of Rs.64.4. Rise in high-margin LAV sales would lead to higher operating leverage, clearly visible in 813 bps expansion in EBITDA margin. We believe that the company is well-poised for significant growth in the future. We, thus, reiterate a “BUY” recommendation with Rs.1417 target price revised upwards based on 22x FY19E EPS of Rs.64.4. The target of Rs.1417 represents a potential upside of 22%.”
Poultry care, cattle husbandry etc is a niche market with tremendous potential
Nobody can dispute that Bill Gates is a visionary. In his speech, he pointed out that while India is the World’s largest milk producer, the productivity per-head of cattle is very poor.
He issued the clarion call that the Central and State Governments have to get their act together and take emergent steps to improve the health of the livestock and increase productivity.
It is obvious that if the Governments do take this advice seriously, the prospects of vaccine companies like Venky’s, Hester, Serum Institute etc will surge through the roof!