After reading some concall transcripts I noticed two critical things
1> EBITDA margin to improve to ~20% over the longer term
2> They have given a kind of guidance to grow at 25% CAGR for the next 3-4 yrs.
Taking these two into account I get close to 50% CAGR for PAT in my rough model. My understanding of their key strengths.
1> Regulatory compliance: they have huge expertise in handling regulatory issues so no US FDA shocker expected. They have more than 15 yrs expertise in dealing with US FDA without any adverse observations.
2> I believe their R&D capability is top notch. The promoter himself has spent considerable time as R&D head in an MNC pharma firm.
3> API pipeline is very strong and innovative. As mentioned above contract mfg. is also expected to grow strongly given their expertise in complex processes
4> Have not come across any other API manufacturer which is developing expertise in Peptides. These are complex molecules. Business potential looks good but don’t know much about this segment neither I have found any management comments.
Some cons:
Management is not yet shown any interest in developing formulations so margin kicker has to come from innovative APIs
Quarterly earnings have been lumpy and will remain so given their B2B focus
Their existing capacity utilisation suggests they need to invest in a new capacity by FY18 for which funds have not been finalised.
All in all a niche pharma company to watch out.
Disc: Have taken initial exposure and will watch closely
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