IOL Chemicals Stock Analysis: A Pain Killer API Story

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Let’s dig deeper into IOL Chemicals Stock Analysis which is a pain killer API story!

Today in the new pandemic stricken world Painkillers are new surviving tools as the sale of Analgesic and Antipyretic such as Ibuprofen has increased tremendously. Before Covid 19 also the price of Ibuprofen has touched sky as evident from the 10 year price chart below:

Who benefitted from the price rise of Ibuprofen?

The stock which benefited most is: IOL Chemical & Pharmaceuticals Limited. As it commands 30% of the global market share of this molecule. The stock price appreciated 5x in past 3 years:

3 Reasons Why Ibuprofen  Price Soared so high?

  1. Shutdown of BASF USA Plant: Actually in 2017, BASF sold all its API business (less margin than formulation) but kept only Ibuprofen API .In 2017  BASF had also announced  that they will expand their capacity in USA plant by 2018 and will set a world scale plant at Germany by 2021, But In June 2018 the USA plant has to be closed down due to technical reasons, which led the prices to rise due to supply shortage
  2. Weakness in Chinese Competition:Largely due to stringent pollution norms implemented during 2017-18 further augmented by Covid disruption in supply chain at China which is the largest API manufacturer of the world.
  3. Codenine Ban in Australia: Codenine, a competing pain killer was banned in 2017 in Australia, which led to people shifting to ibuprofen. In US market Codenine is not an OTC drug while ibuprofen is.
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History of IOLCP

Started in 1986 by  2 brothers: Varinder Gupta & Rajender Gupta to setup acetic acid manufacturing facility.Varinder Gupta has 30+ years of experience in Chemical industry. Rajender Gupta is the Promoter of textile firm Trident Ltd.

In 2002, post family settlement, Varinder became the sole promoter of IOLCP.

Phase -1:Backward Integration
Phase 2:Consolidation

PHARMA SEGMENT

Pharma Revenue Driver 1: High Price

Ibuprofen Price almost doubled in last 5 years

Pharma Revenue Driver 2:Volume

Volume in Million Tonnes tripled in past 5 years

 

2. Chemical Segment

Ethyl Acetate

• Used as solvent for high resolution printing inks and laminated adhesives in all kind of flexible packaging and plastic films. Also used as Hardener in paint industry.

• The global ethyl acetate market is estimated to witness a CAGR of 5.8 % because of increase in the preference for flexible packing over rigid packaging in industries like food & beverages, pharmaceuticals.

Also with increase in urbanization consumption of paints & coatings shall increase which is a key user industry. IOLCP has India’s Largest Ethyl Acetate plant at single location

Iso Butyl Benzene (IBB)

• Raw Material for Ibuprofen

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• Overall Market Size: Rs 250 cr

• World’s Largest player is Vinati Organics with 60%  Global Market Share (Capacity:16,000  TPA)

• IOL CP Second largest manufacturer with 35% Market Share (Capacity: 12,000 TPA)

Update: In Q1, 2021 BASF (USA) plant has became operational as the IBB sales have picked up for Vinati (32 % of revenue contribution against 16% in FY20

Old Business model
Quote from CARE Rating Report

Financial Analysis

EBITDA Margin(%)

OPM Strengthened due to high realization

Borrowing/Leverage

Almost debt free stage

Cashflow from Operation

CFO increasing yoy since last 5 years

Efficiency Ratios

Efficiency ratios are improving

ROCE

ROCE improved substantially

Valuation

Reason for Low PE

Conclusion: Who should buy the Stock?

 

Bonus: Watch this detailed video on IOL Chemicals here:

 

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Amitabh Vatsya
Amitabh Vatsya is an active Investment Vlogger (http://youtube.com/c/Sadhansimplified) | Loves to share his ideas at http://wealthsutra.wordpress.com | Follow him @amitabhvatsya
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