Historical Analysis of Vivimedlabs

Myequity opinion | Date : 10/05/2018 12:00:00

About company:

Established in 1988 Vivimed labs is a small cap phama company. It has 11 manufacturing facilities (8 domestic and 3 overseas), 5 R&D centers (3 domestic and 2 overseas) and global support officesin India, China, Europe and USA.4 of the 11 manufacturing facilities are USFDA approved.

Below are the locations of manufacturing facilities:

Vivimed business can be divided into 2 segments i.e., Pharmaceuticals and Specialty Chemicals.

Pharmaceutical segments

Pharmaceutical segments which contributes to 69% of the revenues can be further divided into API (Active Pharmaceutical Ingredient) and Formulations (Finished Dosage Form).
API = Main ingredient of a drug which is biologically active. API combined with excipient (substance that carries API in required form) will form a Finished Dosage Form (FDF).
This segment supplies API to clients mainly from overseas facilities of Uquifa (subsidiary of Vivimed) in Spain and Mexico.

Most of the FDF are manufactured in India and it is supplied to reputed pharma clients through contract manufacturing and also marketed directly under its own brand.

Some of the drugs manufactured under contract manufacturing:

Capsules and Tablets: Flexasur, Spasmocip Plus, Codarin, Butaproxivon, Valenzia Tablets, Arachitol Tablet, C Pink Tablet
Syrups and liquids: Codarex, Inalgel, Viscodyne, Brozedex (sugar free), Celadrin, Mits Codeine Linctus, Candid Lotion, Candid Mouth Paint
Nasal sprays and Ointments: Otrivin, Nasivion Moist (spray), Nasivion (nasal drops), Candbiotic Ear Drop, Otrivin Nasal Spray, Tobrop

Some of the drugs manufactured and marked under own brand:

Capsules and Tablets: Rumatin, Notus
Syrups and liquids: Fluxcid, Colinol
Ointments: Megadine

Key clients

Specialty Chemicals

Specialty Chemicals which contributes to 31% of the revenues. This is a high margin business for Vivimed. Under this segment company supplied active ingredients of skin care, personal and home care to reputed clients. Company also owns variety of hair dye (brand name Jarocol) and photochromic products (brand name Reversacol).

Financial performance

Vivimed has 12 subsidiaries, some of them are registered due to international presence and ease of operations and some of them are acquired companies.

List of Subsidiaries

  • Vivimed Holdings Limited
  • Vivimed Labs Europe Limited
  • Vivimed Labs USA Inc
  • Vivimed Labs Mauritius Limited
  • Vivimed Labs UK Limited
  • Vivimed Labs Spain SL
  • Vivimed Specialty Chemicals Private Limited
  • Vivimed Life Sciences Private Limited
  • Union QuimicoFarmaceutica SAU
  • Uquifa Mexico SA de CV
  • Finoso Pharma Private Limited

By taking a look at the business model, standalone statements and consolidated statements it is evident that majority of the business transactions happens through subsidiaries and hence we will only be looking at consolidated statements.
Before we look at the current and previous year financial statements let’s look at the past performance of the company.
During 2009 to 2013 company was chasing inorganic growth through acquisitions. Vivimed acquired many businesses which helped the company in reporting spectacular growth in 5 years starting from 2009 to 2013.

During the same period:

  • Revenue grew at the rate of 41% CAGR.
  • Net profit at 44% CAGR.
  • Net profit in absolute terms 19.3cr to 83.5cr.
  • Stock price went up by 550%.
  • Debt increased from 300cr to 647cr.
  • Finance cost (interest) went up from 17cr to 40cr.
  • Companies acquired are below:
    • Octtantis Nobel Labs Private Limited.
    • KlarSehen Private Limited
    • Union QuimicoPharaceutica S.A.U Spain
    • Union QuimicoPharaceutica S.A de C.V, Mexico

While it is quite evident that the acquisitions have yielded a better results. Conversely, this gives a different picture if we look at the debt, finance cost and profit trend from 2013 to 2016. Finance cost was more than the net profit (i.e., more than half of the profit was paid to creditors).Being cautious about this aspect promoters have soldsome of the low margin businesses to clear the debts. As per the latest Q3 results presentation latest debt stands at 825cr and it is expected to reduce further.

Below table shows the corporate action on acquisition, debt and finance cost trend.

Looking at the other aspects of the financials. Company revenue has grown by CAGR 2.9% despite sale of businesses. EBIDTA margin has increased from 17.6 to 19.6, which clearly indicates that businesses divested are low margin in nature. Past 5 year performance is not so exciting, but it is clear that company is putting efforts in right directions to improve the profitability by reducing the debts.

Evaluation and conclusion

Fund raising activities like Orbimed investment, Issuance of warrants will result in dilution of the ownership. Considering that such dilution will result in reduction of debt and increase in profitability we presume that the earning per share will be unaffected. With this presumption if we look at the current price (Rs. 70/Share of face value Rs. 2), it is trading at around 6 times the earning which is far below the listed peers.
Key positives of the company:
  • Most of the clients are leading pharma companies and have associated with the company for long time.
  • Raise in demand for generics in US will help Vivimed CMO and FDF business.
  • Joint venture with Strides Shasun Ltd will increase utilization of its USFDA approved plant in Alathur and this in turn will improve profitability of company.
  • Specialty chemical supplier to top global brand.
  • Management focus towards debt reduction.

Considering these positives points we believe that worst is over for Vivimed and the stock is currently available at cheaper price.

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