Natural Capsules – Pharma play with solid fundamentals

Thanks for the nice compilation of competitive landscape. Adding few observations.

Gelpcaps already went to 5.04 billion capacity in FY22. [Source] (India Ratings and Research: Most Respected Credit Rating and Research Agency India) and perhaps as a result posted very strong revenue growth of 35% in FY22.

ACG receives roughly 50% of it’s revenue from exports. So roughly one can say out of 115Bn capacity, 60 Bn cater to Indian market, which is ~4-5x of NC’s capacity. A strong entrenched player with close to 25% market.

Some other prominent players

1. Healthcaps India Ltd – capacity 19 Bn Capacity has gone up from 17.4 to 19B in last year.

Seems like Medicaps went into capsules manufacturing through a JV with it’s private arm. The company is still in operation, with about <35 cr. revenue rate in FY20. So capacity can be roughly assumed to be in range of 4Bn.

3. Geltec – 4Bn

4. Erawat – 3.6B

5. Renown Pharma – 2Bn

6. Qualicaps – Mgmt identified this as one of competitors. Not much info. on India capacity.
   (In the recent interview mgmt. identified the following top top 3 players as competition i. Capsugel / Lonza, ii. Qualicaps – worlds second largest, from Mitsubishi group iii. ACG, India’s largest.

In Capsules, product level differentiation is perhaps very less. It forms the least expensive component in the finished formulation (at Rs. .011 per piece). From India perspective while ACG is clear market leader with ~60Bn of it’s capacity catering to Indian market. No. 2, 3, 4, 5 place could be held by Lonza, Qualicaps, Healthcaps & Natural Capsules in any order. I don’t have specific capacity nos. of Lonza’s & Qualicaps India site, so it’s hard to put a proper rank. HealthCaps and Natural Capsules are neck to neck in terms of capacity, with NC slated go in front of HealthCaps with current capacity addition. Sunil Healthcare is perhaps a close follower at No.6 with 15Bn capacity.

Earlier I used to think the capsules market to be highly fragmented, but with this exercise it’s clear that ACG (60Bn), HealthCaps (19Bn), NC(21Bn), Sunil (15Bn), Gelcap (5Bn) put together cater to roughly 120/220 Bn of the market and we don’t know the numbers of Lonza and qualicaps, 2 majors.

Rest of the players seem to be at lower end with about 2-4Bn capacity. It wasn’t easy to find information about the capacity addition plan’s of these smaller players. It’s clear most top players are adding good capacity.

Like you mentioned, Lonza’s capacity addition numbers are across 8 sites worldwide. So a educated guess would be ~4 odd Billion for India site ? With this addition they would become 25% of the global market (1000 Bn) supplier. Which is huge. But with NC deriving hardly 20% of it’s revenue from exports, which is say 3.6Bn out of 18Bn, they are anyway no where in picture to compete with the likes of Lonza in export market.

Another aspect that i found interesting about the capex and capacity is:
For Natural Capsules, the capacity enhancement from 10.8 to 24.1 Bn (13.3 Bn) is getting done at expense of 38 cr., which is 2.8 cr. capex requirement per 1Bn capsules capacity.

Compare this to Lonza’s estimate of 93Mn USD for 30 Bn capacity which puts capex requirements per 1Bn capsules at Rs. 24.8 cr. (Not strictly comparable as it’s spread across the world)

Compare this to ACG’s estimate of 600 cr. for 115 capacity, which is 5.2 cr for 1 Bn capacity addition.

So no wonder, ACG is upping it’s game to go from 115 to 230 Bn capacity and come in the same league as world market leader Lonza in one shot.

In the mgmt. interview shared above, Mr. Sunil Mundra has explained (at 32 min mark) why it’s easier for entrenched players to keep getting stronger. Natural Capsules is not there in the league of Lonza/Qualicaps/ACG right now but it definitely seems to be rising above the bottom rest in the market. Post this expansion, NC has good chance to be No. 4 behind Lonza, Qualicaps, ACG for Indian market.

As per some research reports, the empty capsules market is expected to grow at rate of 7.9% over next 10 years. While HPMC market is expected to grow by 9.5%.

Supply glut is a possibility, or another possibility could be strong becoming stronger, if just ACG & Lonza put together are going to cater to ~50% of the global market.

Disc: Invested since Nov’21. No transaction in last month.