By: ICN Bureau
Last updated : May 10, 2021 5:59 pm
ICICI Direct expects the pharma segment to grow at 15% CAGR in FY21-23E to Rs 1407 crore
Hikal’s Q4 revenues grew a robust 40.5% YoY to Rs 533 crore tracking strong growth across both segments. Pharma posted 31.5% YoY growth to Rs 298 crore whereas crop protection grew 53.8% YoY to Rs 235 crore, says ICICI Direct.
EBITDA margins expanded 188 bps YoY, 81 bps QoQ to 20.5% amid lower staff expenses stemming from better operational leverage. Subsequently, EBITDA grew 54.7% YoY to Rs 109 crore. PAT more than doubled to Rs 51 crore.
Expertise in APIs to drive pharma growth: Hikal ventured into the pharma API business by virtue of acquisition of Novartis’ Panoli plant in the year 2000. In a short span of time, banking on its chemistry skills, the company has been able to tap incremental customers via the contract development and manufacturing organization (CDMO) route. Hikal also operates as a dedicated API supplier as it expands its portfolio. We expect the pharma segment to grow at 15% CAGR in FY21-23E to Rs 1407 crore on the back of new offerings and repeat business from CDMO customers.
Crop protection growth to piggyback on client relationship: Hikal started operations as a crop protection company in 1991 after acquiring Merck’s facility in Mahad. Since then, it has come a long way with a predominantly CDMO focused business model catering mainly to global innovators. Over the years, the company has increased its product offerings with a foray into niche products and specialty chemicals. We expect crop protection segment to grow at 15% CAGR in FY21-23E to Rs 872 crore due to sustained product offerings and optimum capacity utilisation.
Valuation & Outlook: The Q4 performance was above I-direct estimates across all fronts. Q4 margin performance was the highest in the past five years, showcasing Hikal's focus on high margin products and backward integration besides cost control measures. Going ahead, the management expects a margin improvement of 50-100 bps from this year onwards on the back of several cost rationalisation and efficiency improvement measures undertaken during the pandemic. Going by the capex guidance, (Rs 200 crore over the next 18 months) things are looking promising for FY22 onwards. Despite the recent stock run-up, Hikal remains a fair value proposition as it continues to expand in both pharma, crop protection segments with separate focus and a calibrated approach. This bodes well in the current scenario when Chinese supply disturbances, government incentives are likely to create opportunities for Indian players both in APIs, crop protection CDMO.