Atirek portfolio

Neuland Reasons for buying

I looked at Neuland after Q4FY23 result but after current result only I got the conviction to buy as I was already having Syngene and I did not knew difference between two. Also the profit looked non repeatable. Syngene is in big pharma and Neuland is in biotech.
Also Niveshaay seems to have it in its portfolio. I don’t know when they added it.

ROCE and ROE improving

Syngene told about problems in biotech company being headwinds due to funding issue still neuland was able to double their phase 2 molecule counts

Industry structure

Pharma growing at 6 percent but CNS area growing faster at 8

Directly buying biotech company might seem risky but cms company helps by diversification

Crams growth in double digit

Biotech company seems to be coming with new drugs more commonly than big pharma

Rerating possible?
Yes, as it current Pe is less than 25

Growth
Many molecule in registration stage(takes 1-2 years to get commercialised)
Capex – Have announced the capex of 120 cr
Unutilised capacity of 3rd plant at 30%+.

Margin expansion
Yes, it is being seen in the last quarter Q2FY24

Debt
Debt is negligible

Negatives

• Its revenue consists of developmental revenue and commercial revenue. Developmental revenue might be one time revenue. Need to check about sustainability of revenue.

• Why is the reduction of the commercial molecules from Q2FY23 to Q2FY24 when we have never lost a customer?(Need to check)

• How frequent is the situation where after going commercial with the molecule, the biotech firms with which we work change the suppliers due to any reasons like being acquired by big pharma, licensing deals with big pharma, due to constraint in capacity, etc. ? (Need to check)

• Management selling 10 percent of the company in a company with low promoter ownership.

Tailwinds

• Considering three months of revenue growth, it seems they might be getting recurring revenue. Also its cms manufactoring business has been growing month on month for few years now. In few years, things will become sustainable. (medium)

• Mostly 5-6 molecules is contributing with new molecule contributing more and 1-2 molecule more is to be commercialised.(short)

• Most of its molecules are in cns theraupaurtitic area which is supposed to grow by 8 percent cagr.(long)

• No patent expiring till 2030(long)

MOAT
Not lost a client since inception in cms(q2 fy2024)
Shifting client is cumbersome in custom synthesis
Trust factor with innovator
Many patents granted for Neuland(more than 50 when compared to 100 for SRF)

Optionalities

KarXT comes with no side effects of currently mental diseases medicine( like schizophrenic, bipolar) like hand shaking, weight gain, muscles rigidity. It is revolutionary and the profits from commercial manufacturing of this medicine can make it bigger than any custom manufacturing companies.

Why pharma companies come to India as per Neuland?

• Complex process

• Source of material is in India

• Cost of material

Screening criteria
Through unseen value.