Im feeling bit dumb here. Can you please explain what is logic behind diluting equity by 30% and recalculating book value?
Posts tagged Value Pickr
Merck Limited: The Most Undervalued MNC Pharma@ High Growth (02-10-2015)
Sharing recent article on OTC brands have discussed few Merck brands
If You've Got It, Flaunt It
Pharma companies are giving OTC brands a strong makeover by splurging on advertising
Himanshu KakkarSEP 29 , 2015
Illustration by Kishore Das
With actresses invading our collective bathrooms to check our toothpastes for salt and TV presenters making their way to the loo to sell floor cleaners, perhaps the day was not far when our national cricket team began peddling medical formulations. But even by those consumeristic standards, the ad featuring cricketer Rohit Sharma endorsing Nasivion nasal drops comes as a surprise. While you might have thought prescribing nasal decongestants was your ENT specialist’s job, we live in a world where do-it-yourself (DIY) is fast becoming the dictum, and pharma companies seem to be on board with that philosophy. In the pharma world, DIY can be conveniently packaged as ‘self-care’, implying the companies’ arsenal of over-the-counter (OTC) drugs.
Brijesh Kapil, Merck IndiaCelebrities mostly helpthe brand break through the clutter and establish its dominance in the market — Brijesh Kapil, general manager - head of consumer health, Merck India When Rohit Sharma is shown huffing Nasivion before a cricket match in the TV commercial, Merck, the maker of the drug, has a large number of potential consumers on its mind.
“Celebrities help the brand break through the clutter and establish its dominance in the market. Rohit Sharma as a celebrity brand ambassador did positively impact the brand” says Brijesh Kapil, head of consumer health, Merck India. It is not surprising that the brand turnover of Nasivion improved by 33% over the past three years. And it’s not just Merck.
For years, constipated masses across the country would see doctors prescribing the Dulcolax tablet – the No.1 laxative brand in the world – to them. But late last year, maker Boehringer Ingelheim, which used to market the tablet through Zydus Cadilla in India, decided to advertise its magic motion pill on TV under a new brand name – Dulcoflex.
Susan Josi, managing partner, Sorento Healthcare Communications, says that the company is the first to take this step in the laxative pills category. “Boehringer Ingelheim was No.1 in the prescription space. Then the company realised it could just launch its own brand instead. It ended the agreement with Zydus Cadilla and launched an OTC division in India last year,” says Josi.
The company’s move is hardly surprising, given that the size of the OTC pharma market in India is pegged at ₹5,300 crore. The overall OTC category is estimated to be worth $3 billion-$4 billion and has grown at the rate of over 20% in the past three years. There are three types of OTC players in India. First, companies like Dabur, which sell ayurvedic or herbal products. Second, companies like Paras Pharma, which, being an exception, directly launched OTC products, completely bypassing the prescription route; the company sells Moov, Krack and Itch Guard creams. Third, pharma companies that strategically switch from prescription (Rx) drugs to OTC. It is this third type of pharma companies that are now going out of their comfort zones to turn into consumer brands.
Hot counters
OTC brands advertised by pharma companies
*Dulcoflex was being sold by Zydus as Dulcolax before 2013, and its size is estimated to be under Rs.12 crore. Source: IMS Health
“Typically, companies have to apply to the regulator for permission to launch an OTC drug. The regulator then decides whether the drug is fit to be launched under the OTC segment. In doing so, it takes into consideration questions like if the molecule has been in use for several years, if it treats a condition that has widespread prevalence and whether patients would face discomfort if it was consumed by mistake,” says Hemant Bakhru, pharma analyst at CLSA.
“The OTC switch is possibly to create bigger, self-sustaining brands without investing on the medical representative side and without the need for doctors’ prescriptions,” adds Bakhru. There is a science behind the idea, insists Josi of Sorento. “After some time, doctor’s prescriptions don’t go up but sales keep increasing. This happens because the consumers buy your product on their own.” Once you have been prescribed an Otrivin or Nasivion for a blocked nose, you are not going to return to the doctor. This often is an opportunity for pharma companies to try and figure out how they can increase sales. “While the doctor may have reduced the prescription, the consumer goes back and buys the brand on his or her own. Why not go to the consumer directly,” asks Josi.
Star power
Celebrities who endorsed OTC brands
Pharma companies are confident that building brands is a more sustainable way to grow the business in the long term. “It is an attractive business from a long-term perspective,” says Kedar Rajadnye, president and COO, consumer products, Piramal Enterprises. On the surface, the value proposition is not that apparent – high margins and brand premiums are only forthcoming in the herbal category. Then again, drugs that fall under price control in the Rx category cannot be sold at higher prices as OTC drugs. So, the only plays the pharma companies experimenting in the OTC category have are the volumes game and brand creation.
And Sun Pharma (formerly, Ranbaxy) has one of the best success stories. Its pain-relieving cream Volini and health supplement Revital currently rule the roost. The former was introduced in the 1990s and remained a prescription topical analgesic till 2007, when its first few TVCs were launched. With actresses such as Sonali Bendre and Trisha Krishnan promoting the brand, Volini went on to become a ₹250 crore brand from a measly ₹50 crore at the time of switch in 2007.
Similarly, Revital, first promoted by cricketer Yuvraj Singh and then actor Salman Khan, went from being a ₹27-crore brand at the time of the switch in 2002 to being over ₹200 crore by July 2014. Subodh Marwah, vice-president, global consumer healthcare, Sun Pharma, says, “The basic philosophy behind the switch was that consumers find the brand relevant even without the doctor’s recommendation, and if you continue to build that relevance, then the brand will find resonance with the consumers.”
But that is not a hard-and-fast rule –Piramal didn’t let doctors prescribe i-pill – it jumped into the market right away, which had its own costs. “The product exploded in the media. It was a good, unmet need. But the amount of money the company spent to get return was almost 100% (against a typical 20% in case of a switch),” says Josi. This was also because the company didn’t have a choice – most doctors are unlikely to prescribe a morning-after pill.
Making a name
The OTC market in India is nascent and is not very clearly defined. “But the industry is thriving and is growing better than pharma,” says Kapil of Merck. The OTC business contributes close to 35% to the all-India pharma business at Merck. The business has been growing at a healthy 16% over the past three years against the market growth rate of 9%. In fact, OTC contributed 20% to Ranbaxy India’s sales before it was bought over by Sun Pharma. The company has around 10 OTC brands, including the best-selling Revital, Volini, Pepfiz, Chericof and Garlic Pearl.
Over the past three to four years, these companies have created good traction through some strategic brand switches and placements. “Merck has almost quadrupled sales over the past three years on account of the Neurobion brand shift. Neurobion has grown a healthy 18% over the past two years in a phased switch progression,” says Kapil.
As a global strategic move, Merck shifted the Neurobion vitamin supplement from the Rx category to the consumer portfolio in 2013. The move right away added a billion dollars to Merck’s global consumer health division’s revenue that year. Merck’s OTC business is currently projected at over ₹200 crore. Neurobion and Nasivion are its top brands and their respective sizes are ₹125 crore and ₹40 crore. Seven Seas is its third key brand in India.
Starting from the 40th spot in 2007, Piramal Consumer Health has advanced into the top 10, riding on brands like Lacto Calamine lotion (the company’s first ₹100-crore brand), Saridon (reaching ₹37 crore), i-pill, i-sure, i-can and Polycrol antacid. “Our ambition is to be in the top three by 2018,” says Rajadnye of Piramal. What is the source of his confidence? “Most of our brands are either No.1 or No.2 in their categories and we have one of the largest field force of 1,000 people,” he adds.
Piramal’s strategy is four-fold. “We are launching new products and categories, looking for acquisitions, increasing coverage and making the best use of the self-care market, which is growing faster than prescription.” Sun Pharma, on the other hand, still has its eye on the unmet needs of consumers and is leveraging its existing brands even more. “Our strategic focus has always been to provide value to our consumers by identifying insights and uncovering needs that we can meet,” says Marwah.
Sun Pharma’s OTC poster boy Volini was introduced in this business in 2006. “Since then, it has grown almost five times in size. Over the years, we have introduced relevant and significant extensions such as Revital Woman or Volini Spray, which have resonated with consumers due to the need gaps they addressed. These gaps were unmet in the market by any brand,” Marwah adds. Merck’s OTC strategy in India – which is the 3X3 strategy – is driven by the global Merck Consumer Health (CH) division strategy.
“This means that we aim for a 3% market share, with three strategic brands in the top strategic markets identified by Merck CH,” reveals Kapil. And India is one of the key strategic markets for Merck. Existing market share for Merck CH India hovers at 1.2% despite growth rates of 50-100%. “This should give us a market share of 1.5% by 2021. We are working on brands to cover the strategic planning gap of the 1.5% share by acquiring brands or through M&A,” he adds.
India is amongst the top five markets for Neurobion and Nasivion globally. No wonder, then, that the company’s three strategic brands for India at the moment are Neurobion, Nasivion and Seven Seas. The first two are the top prescribed brands in their respective categories and Seven Seas leads in the cod liver oil segment.
But not every company is successful with OTC ventures. “Success here depends on two things. One, your product profile and the depth of your pocket to sustain it,” says Kewal Handa, former MD, Pfizer India. “Successful are those who manage consumer businesses with a different mindset. If you have a prescription mindset and you are managing a consumer business, then it will be a challenge,” says Handa.
Before 2006, Pfizer had OTC brands such as Benadryl and Listerine in its stable, but it sold these off to Johnson & Johnson, which, according to Handa, has done a better job with these brands. But when a drug is switched to OTC, the company moves out of a comfortable controlled zone into the wild world. In the prescription space, the marketing heads have a fair idea of the number of doctors and chemists, where they are, how to crack the market, how much to sell, how much will be the cost. But outside this zone, the journey can throw up surprises.
“So, the benchmark for most companies that have moved into the OTC space is that they need high gross revenue because that gives them a lot to play with, both in the media and with selling and distribution,” says Josi. In the case of Merck, with India being its strategic market, the company makes considerable investments to realise 1.5-2X of the growth in the market. “The marketing and sales expenditure hovers around 15-40%, based on the marketing or communication objective,” says Kapil.
Making connections
One has to get the right partners involved for both creative and advertising campaigns. “We have been paying a premium by having the best agencies on our rolls, but value will help us in the long run,” says Rajadnye. He feels that keeping a tab on costs and right targeting are very important for pharma companies, given that they are not peddling soft drinks. “All the elements of P&L play a role. It is very important that every rupee helps promote the brand,” says Rajadnye.
Piramal roped in boxer Mary Kom five years ago to promote Polycrol antacid, which is No.1 in east India. Its Jungle Magic range of children’s products are promoted by Juhi Chawla. With lack of FMCG-like budgets, innovation is what pharma companies resort to. “To help Saridon have top-of-the-mind recall, we associated it with anything to do with headaches. We involved movie critics Anupama Chopra and Rajiv Masand to do Saridon reviews of movies so that they could point out those that would give viewers headaches,” says Rajadnye.
Merck, on its part, has done Seven Seas tie-ups with Spelling Bee competitions and the Spider-Man franchisee to promote it with the children segment and through school activations. But is it mandatory to have celebrity endorsements? “You are replacing doctors with someone who is more popular with the consumer. It also gives you an immediate headstart – you are not seen as a fuddy-duddy, Rx kind of product, you get a little bit more consumerised in the eyes of the audience, and depending on what category you are present in, your visibility goes up. If you have the money, why not use it to break through the clutter,” asks Josi.
Subodh MarwahThe product and the brand should always remain at the core. The celebrity should add value and never overpower the brand — Subodh Marwah, vice-president, Global Consumer Healthcare, Sun Pharma Sun (as Ranbaxy) had a dream run with Salman Khan as the poster boy for Revital. But, Marwah adds, “We believe that the product and the brand should always remain at the core. The celebrity should add value and never overpower the brand.” With Revital, the company created the need for health supplements – you were advised to take it if you returned tired from work. “Then, when the company achieved economies of scale and had cash, it opted for a celebrity,” says Josi.
To win more and more consumers, it is an imperative for companies to keep looking for unmet needs. Piramal decided to offer a solution for one such need. When at home, kids are protected from mosquitoes. But what about when they go out? So, three years ago, the Jungle Magic mosquito band was launched. “It has been a runaway success. Nothing like it existed in the market. Many players have copied us,” says Rajadnye.
The company’s recent innovation has been a tiffin box with a locked-in hand sanitiser – to open the box, kids have to use the sanitiser first. Merck has been playing around with its nasal brand to attract consumers as well. The company introduced the innovative Nasivion No Drip (which does not leave a bad aftertaste), Nasivion Moist (which moistens nasal mucosa), Nasivion Advanced (with herbal ingredients) and Nasivion Saline (for daily nasal health and hygiene) and the Nasivion Paed and Mini ranges to cater to the kid segment.
“Many companies are interested in the OTC space but the moment they spend some time here, they realise that you need to be in this space for a long time and need to keep investing in marketing. So, many opt out,” says Rajadnye about the challenging economics of the space. “Typically, ad spends for a new brand are 4-5X sales for the first three to four years,” he adds.
Kedar RajadnyeHaving one or two OTC brands will not make sense, as you require large distribution, infrastructure and marketing capabilities — Kedar Rajadnye, president and COO, consumer products, Piramal Enterprises The sustained ad spends, low margins and initial low volumes don’t make the OTC look pretty. But the key factor driving the industry is the creation of brands that have got years of legacy of usage with consumers and doctor prescriptions. “Hence, you would need minimal expenditure to create a brand and later evolve strategies to unlock value through innovative product and marketing strategies,” says Kapil. Sun (post Ranbaxy buyout) and Zydus Cadilla are looking at increasing contribution from their OTC businesses.
But just having a long-term perspective isn’t good enough. Another piece of the puzzle is having a strong portfolio. “Having one or two OTC brands will not make sense, as you require large distribution, infrastructure and marketing capabilities,” says Rajadnye. “You also have to compete with multimedia competition and the likes of Amway, which are on a similar platform but have a different distribution channel. So, competition comes from companies that are not pharma companies,” says Handa.
Clearly, there is a long transformational path for Indian pharma companies. But, they are walking fast and have no qualms in admitting who they are learning from. “Given that we are a kind of a crossover business between pharmaceuticals and FMCG, we actually learn from both sides,” says Marwah of Sun pharma. For now, this strategy is like having the best of both worlds.
GRUH Finance – mini HDFC (02-10-2015)
with Hitesh's nudge, I wanted to do this exercise and below are the results. I will leave it to the forum members on further conclusions. I kept it fairly simple.
It was a revelation for me as it looks quite cheap. I think Gruh was supposed to dilute the equity in FY16, not sure of the status.
GRUH Finance – mini HDFC (02-10-2015)
For all those worried about gruh price to book just consider a hypothetical situation where gruh dilutes equity at current rates to the tune of 30% and then calculate the book value then arrived at. It will in all probability look extremely cheap. But since it has very high ROE, it doesnt need to dilute equity.
Plus it pays out 30% of profits as dividends which restricts book value growth.
As mentioned before in the post, gruh has to be evaluated on a PE basis, rather than getting stuck with price to book.
Lycos internet – way to digitalization (02-10-2015)
The 1Q15 con call report is now available on the company website.
I think the biggest worry of the company has been high recievables (~6 months outstanding). This, I believe is being addressed to a certain extent. Receivables in digital segment have reduced from 106days to 100days and on consolidation basis receivables have decreased from 158days to140days. The receivables for more than six months in digital,is Rs.20 crores. All other receivables are collected.
Hindustan media ventures: a play on literate india? (02-10-2015)
i have moved the dta to an existing thread, so you can delete it.
Hindistan Media Ventures Limted (HMVL): A mispriced bet in newspaper business (02-10-2015)
Owner of HINDUSTAN,LARGEST NEWSPAPER IN BIHAR, JHARKHAND. SECOND LARGEST IN UP. Hindustan ranks as the second largest-read daily in the country.
Hindustan has 4 editions and 113 sub editions across the Hindi belt. They are spread across Delhi, Bihar (Patna, Muzaffarpur and Bhagalpur), Jharkhand (Ranchi, Jamshedpur and Dhanbad), Uttar Pradesh (Lucknow, Varanasi, Meerut, Agra and Kanpur) and Chandigarh. Apart from these, the paper is also available in key towns like Aligarh, Mathura and Allahabad.
The stock is trading at PE, which is lower than its peers than Daini Bhasker and Jagran Prakashan. So in that sense this is a good value media pick because along with its synergies with HT Media it is able to sustain growth over a longer period of time
Fastest growing, in readership and profitability:
Hindustan, the Hindi daily of HMVL, is the second-largest daily in India (IRS-2014), growing by 25% through 2010-2014. HMVL's EBITDA has grown 14.85% CAGR through FY11-FY15, significantly outperforming peers. HMVL has also registered significant gains in the UP market in IRS-2013, which provide for a strong long-term growth engine for the company. It can be note that UP market is the largest Hindi advertising market, and management expects that readership growth can enable growth of 2-3x in revenues from Uttar Pradesh.
UP & Uttarakhand (UK) to act as growth drivers for HMVL
HMVL’s readership in UP & UK grew at strong CAGR growth of 26% from 2.5 mn in 2009 to 8.1 mn in 2014 and entered into 2nd spot in UP following Dainik Jagran. With HMVL moving to 2nd spot in UP, which is the largest market for advertising industry with size of Rs.12 Bn, HMVL has started to increase the advertisement rates charged to companies LEADING TO EXPANSION IN MARGINS.
Hindi & Regional markets growing faster than the English markets
Literacy rate is one of the key factors behind the growth of Indian print industry. As literacy rate increases in Indian states, people tend to start reading newspapers as they get familiar with their regional language. Hindi and regional markets control 64% of Indian print Industry and likely to witness CAGR growth of 9.6% & 10.4% respectively. Print is the preferred mode for advertisers in India where companies spend 42% of total ad spends on print. Advertisers prefer print as it is better medium of reach to the non-metros, Tier-III and Tier-IV cities compared to digital & TV. Literacy rates in Hindi states are lower compared to national average which is expected to support growth. English market is likely to witness a slower CAGR of 5% compared to industry growth of 8%, on the back of shift towards digital media as the segment is catering mostly to big cities and metros where internet penetration and spending power is high.
Newsprint costs on decline
Newsprint is the major input and forms 51% of the company’s total expenses. With newspaper circulation declining in advanced economies on the back of shift towards digital, the demand for newsprint is on decline leading to cooling of newsprint costs. Further, transportation costs also to come down on the back of declining fuel costs. Newsprint prices have been coming off in the
last couple of years from $640 per ton in 2012 to $540 per ton in Q1FY15 according to karvy reasearch , As a result, raw material expenses as % of sales started to decline from 43% in FY12 to 41% in FY15.
Way to valuation convergence - growth, visibility, easy base to beat:
We believe HMVL shall register industry-beating revenue growth in the coming quartersenabled by strong growth in readership. Also, competitive intensity has begunto reduce in Jharkhand (strong growth in realization/ copy of DainikBhaskar). Lastly, on account of high employee expenses (Majithia Wage board) and promotional activity in Bihar (Patna launch of Dainik Bhaskar in 3QFY14), 3QFY14-2QFY15 have set up an easy to beat base. HMVL is set to register 35% growth in EBITDA in FY15-FY16 period, which will ensure earnings growth looks attractive in the coming quarters.
Near-term, earnings are likely to be well- supported by elections in key geographies further improving visibility:
HMVL will see elections in all of its key geographies in the next 24 months, starting with Bihar (3QFY16), and followed by Uttar Pradesh. The company's earnings growth visibility, as well as industry - outperformance, is bolstered by these events.
PROS:
1.CONSTANTLY INCREASING OPM FROM 17.07 IN FY10 TO 20.33 IN FY15
NET PROFIT MARGINS INCREASE FROM 10.31 TO 17.20.
ROE INCREASE FROM 14% TO 19.19% and consistent free cash flow geneation.
MARKET CAP OF RS.1650 CR AND NET CASH OF RS 576CR.
BIHAR ELECTIONS ON ANVIL.
INSPITE OF GENERAL ELECTION ADSPENDS IN Q1FY15,
IT SHOWED A REMARKABLE INCREASE IN Q1FY16.
PROFIT INCREASED BY 23%.DECREASING PRICE DIFFERENTIAL BETWEEN ADRATES OF ENGLISH AND HINDI NEWSPAPERS.
INREASING READERSHIP AND CIRCULATION REVENUE.
CONS:
1. NO SPECIFIC AGENDA FOR DEPLOYEMENT OF CASH HOARD.
- VERY LOW DIVIDEND INSPITE OF HEALTHY CASH FLOWS.
THIS STOCK DESERVES A DEEP LOOK AS IT IS AVAILABLE ON PE OF 10-12.
MANAGEMENT
Mr. Vivek Khanna
Chief Executive Officer
Vivek Joined HT Media in 2008 after working for more than 16 years, of which 11 were spent with Hindustan Lever Limited (HLL). He led strategic and marketing initiatives - segmentation, positioning, advertising & new product development at HLL. In his last assignment he was Director Marketing with Aviva responsible for the Company's product & marketing strategy. At HT Media Mr. Vivek Khanna set up the Ad for Equity (AFE) business. He ran the AFE business and Mint business for the last 5 years, growing these from small insignificant numbers to a strong & significant size.
He is the architect of current good shape in which HMVL is.
SHOBHANA BHARTIA
The media CZARINA. Owner of HT Group and daughter of late Mr. KK BIRLA.
disclosure: I currently have no stock position in the stock.