Hikal Limited Business Analysis – Unique CDMO Opportunities for Animal Healthcare & Crop Protection

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Written By: Shuchi Nahar | Shuchi’s Blog | Linkedin Profile

Let’s dive deeper into Hikal Limited business analysis.

1. Company Overview

Established in 1988, Hikal is predominantly a B2B player that provides intermediates and active ingredients to global pharmaceutical, animal health, crop protection and specialty chemical companies.

Hikal today is one of the leading global suppliers to the Life Sciences industry.

Company is having six sites providing a multitude of services across the value chain.

Figure:1 Business Snapshot

The pharma business is currently divided almost equally between generic active pharma ingredients (APIs) and contract development and manufacturing organisation (CDMO) businesses. Leading Sustainable Technology driven company serving the Crop Protection & Pharmaceutical Industries.

Figure:2 Company Overview

2. Revenue Growth Trend over the Years

      Figure:3 Hikal’s Revenue Trend

      Source: Company’s Investor Presentation

Hikal recorded a total turnover of ₹15,073 million as compared to ₹ 15,896 million in FY 2019-20, a decrease of 5.2. The crop protection division witnessed a sales de-growth from ₹ 6,505 million in FY 2018-19 to₹ 6,204 million in FY 2019-20, a decline of 4.63%.

The pharmaceutical division witnessed a sales de-growth from ₹ 9,391 million in FY 2018-19 to ₹8,869 million in FY 2019-20, a decline of 5.56%.

The reason for this performance is largely attributable to de-stocking at the customers end which resulted in lower volumes during the year.

3. Research & Development – Principal Growth Driver

  Figure:3 Increase in R&D Expense Year on Year | Source: Company’s Investor Presentation

Innovation across processes and strong research capabilities have been made possible through our dedicated team of ~250 scientists. Annually, we invest about 3-4% of our total sales in R&T.

· Commercialize 3-4 DMF’s in 2019-20 for our generic API portfolio.

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· Continue to generate our own IP through Process Patents

· Filed 2 DMFs (Dapagliflozin and Empagliflozin) as part of our proprietary portfolio in the pharmaceutical division, one veterinary master file (VMF) and one certificate of suitability (CEP) for Europe

· The VMF is for an antiparasitic active ingredient for veterinary use. The CEP is for Flunarizine which is a migraine prevention medication

· R&T facility in Pune and Development and Launch plant (DLP) in Bangalore delivered several contract development and manufacturing projects successfully

· In efforts to develop DLP further, we have filed a DMF from this site Developed a new API using an enzymatic process which is both cost-effective and environmentally friendly.

4. Pharmaceuticals – Important Business Segment

      Figure:4 Pharmaceuticals Business Overview

Invested significantly in the generic API business both in terms of personnel and manufacturing capabilities. Company has strengthened their R&D infrastructure by starting a solid-state chemistry lab that will help them serve customers better in terms of getting the right polymorphs and particle sizes of API’s.

Contract manufacture two large volume molecules, a neuropathic pain reliever and an anticholesterol molecule exclusively for a leading US based innovator Company. Expecting the volumes of both these molecules to continue to grow in the coming year.

Gabapentin (CNS) is the largest product that contributes ~40% to total pharma sales. The pharma business is mainly export-oriented with ~55% of sales derived from the US, 30% from Europe and the balance from the rest of the world (RoW).

5. Animal Health Business – A Natural Progression

Hikal continues its focus on growing the animal health business. Our exclusive manufacturing contract with a leading US-based veterinary drug innovator for a non-antibiotic veterinary drug API was stable in terms of volume this past year. Hikal completed the scale up validation of a niche pain management veterinary drug.  

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Company plans to commercialise several advanced intermediates for a new generation ectoparasitic API that belongs to the isoxazoline group. Successfully filed a VMF for an antiparasitic active ingredient used in veterinary medicine in livestock and pets against internal parasites. Company has developed a process for the preparation of a leading flea and tick medicine.

      Figure: 5 Animal Healthcare Overview 

6. Crop Protection – Bodes Well for the Company

      Figure:6  Crop Protection Overview

Company’s Crop Protection CDMO segment has 2-3 products in the pipeline currently. These are all early stage products. Overall, product pipeline is healthy. Over the years, it has increased its product offerings with a foray into niche products and specialty chemicals.

During the financial year, a project on organophosphorus chemistry was developed and delivered. Company also scaled up and successfully commercialised a biocide product. This was done while company continued developing processes for 2 new products, expected to be commercialised in the next few years.

Additionally, a new process for a novel fungicide was also developed for
an innovator company and is due for commercialisation next year.

7. Capex Long-Term Horizon

At Hikal,they have a capex programme running across both their segments, aggregating to around ₹ 3,000 million, which is targeted towards capacity addition and upgradation of infrastructure across facilities. As of 31 March 2020, company has already invested ₹ 1,580 million and the balance capex cycle is expected to get completed in 2020-21. The capex is targeted towards multi-product plants providing us with flexibility to manufacture various products. 

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About 40-55% of this new capacity will be absorbed by existing products and balance capacity will be utilised for new products. The current capex programme would have a blended asset turnover of approximately 1.5 times, once completed.

References: 2019-20 Hikal’s Annual Report & Q1FY21, Q4FY20  Investor Presentation

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Shuchi Nahar

Shuchi Nahar

Shuchi is NISM Certified Equity Research Analyst, CFA - Level 1, a student of Law and Finance, and an aspiring CS.
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