Small size, big strides…
About the company- Sakar Healthcare Limited (SHL) is a Gujarat based pharma company which is engaged into contract manufacturing of typical pharmaceutical products which later diversified into own manufacturing. Only few years ago it has started focusing on Oncology as dedicated and strategic business unit with vertically integrated capabilities. It exports to more than 60 countries.
• SHL owns two facilities- a manufacturing unit in Changodar for oral liquids, tablets, injectables, dry powder & inhaler and one more unit in Bavla for Oncology Products.
• FY25 Revenues Mix – 55% Own Brand Exports; 41% CDMO/CMO; 4% Loan Licensing.
Investment Rationale
• Oncology to be the key growth driver – One of the key differentiators for SHL is the vertically integrated model for Oncology products. Oncology APIs are complex to develop and a very few players have the capabilities to develop them. As of 9MFY26, SHL has received Marketing Authorisations for 11 products globally including 6 in Europe (Bosnia and Bulgaria) and it has a target of 250–300 MAs globally by FY27 across 48 countries (emerging markets). The Oncology facility has the peak potential of ~₹1000 crore worth of revenues by operating 3 shifts with ~80% utilization (currently at 8%) by FY30 without any incremental capex. We expect the Oncology business to grow at a CAGR of ~118% to ₹ 350 crore between FY25-FY28E.
• Return ratios, cashflows to improve significantly –RoCE is languishing at ~8% due to lower capacity utilisation of the Oncology plant at Bavla. Now that all the growth capex being captured and minimal maintenance capex going further, we expect return ratios to improve substantially, piggybacking on growth velocity. With better EBITDA margins (~30%+) from the Oncology products we expect SHL to deliver strong operating cashflows in the future.
• Non-Oncology to support with a normal growth- SHL has the capability to manufacture oral liquids, tablets, injectables, dry powder & inhaler spanning across 24 therapies. It has existing CMO/CDMO contracts with Indian Pharma players like Zydus Lifesciences, Emcure Pharma, Glenmark Pharma, Cipla, Ipca Labs, Abbott India etc. for domestic and deemed exports. While it also exports Sakarin /Heparin (blood thinners) and Cephalosporin (anti-infective) drugs along many others around the globe. Non-oncology manufacturing capacity already operates at ~75% capacity utilisation. We expect this business to grow at a steady pace of~7% CAGR during FY25-FY28E to ₹178 crore to be supported by its existing CMO/CDMO contracts with Indian Pharma players.
Rating and Target Price
• We value SHL at ₹605 based on 15x FY28E EPS of ₹ 40.4
