Gufic Biosciences was founded in 1970 as an injectable manufacturer (lyophilisation) and then exited API & formulations business by selling its top 6 brands to Ranbaxy in 1997. It re-entered formulation in 2007. It is a R&D focused pharma company (8-10% of revenue) whose business is distributed as such
Domestic Branded segment: 50% revenue with Gross margins 55-60%. Engaged primarily in critical care (life-death operation), Infertility, among others.
Contract Manufacturing (30% revenue contribution at 30% margins) of lyophilised formulations for all top pharma cos of India (one time 170cr topline jump in FY22 earnings for Remdesivir)
Exports (15% revenue contribution) to mainly developing countries and few developed markets like Germany and Switzerland
API (5% revenue contribution) 50% is captive consumption reducing dependence on Chinese APIs.
My understanding is the company primarily runs CMO business along with branded segments as cash cows to fund extensive R&D expenditure. Both father-son duo and rest of the management are experienced & educated in pharma. Son (CEO) studied at John Hopkins (World rank 1 in biotech).
Moat: Pioneering new technologies (drugs and drug delivery systems)
They have consistently brought new technology to India. Lyophilisation is the process of freeze-drying liquid injectable formulation to powder form for easy transport. They were pioneers in this tech but it is now a commoditized market so they are investing in scale- one of the largest lyophilisation capacities in the world. Similarly they are the only Indian co to have got a licence to handle Botulinum Toxin and made a product as effective as Botox (Very toxic).
Key Thesis Pointers
Company just finished a huge capex, new lyophilsation factory will start in September. Operating leverage will begin to play out and management consistently tries to do backward integration (captive API production, CEO mulled making plastic bags for dual-bag chamber tech in the future in concall).
Apart from core business growth in CDMO and branded segment, technology advancements can give pleasant surprises as company regularly brings new technology to India. As the pharma sector picks up again, institutional buying will be the real driver of stock price as it is an established name with competent promoters and track record.
- Just a 2500 cr company with 75% promoter holding. 23% holding with the public Few to no analysts tracking it.
- EU, WHO etc certified manufacturing facilities and collaborations with leading scientists around the world with whom it brings tech to India ( eg Collaboration with Prime Bio in USA to launch Botox equivalent, first immuno-onco therapy with an Australian company etc)
- New Indore facility that will make capacity 1.5x of present. It will come live this September. Company finished a Capex of 270cr with 170cr from internal accruals…
- Strong presence in fast growing market segments – infertility, strong antibacterial meds, dermatology etc
Questions/Risks I’m evaluating
- They run the risk of slow market growth or success in new industries they are getting into (like botulinum applications in beauty/anti-aging which is only a 120cr market right now dominated by Botox which is a global brand). Therefore R&D not paying off.
- Company is difficult to track due to the wide range of products. Trying to Scuttlebutt with industry professionals find switching costs, image of the company. Doctors on Valuepikr forum have said good things.
- Return on capital invested in R&D and verifying strong track record of entering and dominating that market.
Disc: invested @270 (15% of portfolio)
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