Shilpa Medicare – A Company with a Vision?

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We are going to discuss a company whose founder is known for his vision, analytical thinking, and taking different routes than the rest.

Management Analysis of Shilpa Medicare

Shilpa medicare was founded by Mr. Vishnukant C. Bhutada in 1987, having its first contract manufacturing unit in Raichur, Karnataka.

Back then Ahmedabad, Mumbai, and Hyderabad were top cities for Pharma companies. And yet he started his unit in Raichur and did face challenges in finding manpower. But as they say, the rest is history.

He was born in a Maheshwari Marwari Family and against the community trend of doing and joining family Business, he decided to pursue B. Pharma and post that founded Shilpa Medicare.

His family was in the business of textiles so Pharma was something different he pursued.

Although the company started with contract manufacturing, slowly they entered API (Active Pharmaceutical Ingredients) business.

In 2000 when all major pharma companies were trying to focus on Cardio, Diabetes, etc. he realized based on the research that Cancer(Oncology) would be one of the major issues going forward due to the lifestyle and focused on that.

Cancer back then was dominated by select few Pharma companies having well-established R&D capacity.

Having already supplying APIs for oncology, the next logical step for them was to enter in formulation business of Oncology. Once the patent expired company did vertical integration and launched Oncology generic drugs.

What’s the present situation?

Today, Shilpa Medicare is a global brand in the manufacturing and supplying of affordable API and Formulation globally in regulated and emerging markets.

The company supplies 30 oncology Apis and a total of 44 oncology and non-oncology APIs to regulated markets and emerging markets.

Additionally, the company also offers oncology formulations. It has 16 injectable dosages, 19 oral solid dosages, and 13 formulations under the wholly-owned subsidiary Shilpa Therapeutics Private Limited.

Let’s have a look at the business of the Shilpa Medicare

  • API
  • Formulations
  • Biologics/Biosimilars
  • Novel Biologic
  • Dermatological Formulations
  • Oral Dissolving Films & Transdermal Products

At present, the company has its major revenue coming from API and formulations. The company is actively advancing the research and product launch in Biosimilars and Biologics.

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Biologics are drugs that are made from living organisms and Biosimilars are the corresponding generic version having a similar effect that can be introduced post the patent expiry.

As evident biologics and biosimilars are complex and require more R&D and expenditure as compared to the drugs made from chemicals.

Biologics are advancing among the top drugs as they can cure complex diseases.

Although biosimilar is complex to make but to maintain margin, generic pharma companies need to focus on regulated markets and launching products before the rest and continue launching newer and newer products to maintain margins and lead and this is what Shilpa medicare is aspiring to do.

Shilpa Medicare has also increased R&D spending to launch biologics along with biosimilars.

The company has also been focusing on Novel Biologics. The company has patents in biosimilar (only 1 in biologics and the rest are biosimilars) and they are in clinical phases and the company is hoping to launch products by the end of 2022 in biologics and Novel Biologics.

Additionally, the company is focusing on Dermatological Formulations, Oral Dissolving Films & Transdermal Products for future growth.

In the recent Quarter company claimed to have filed a total of 380 patents and have received grants for 51.

Don’t confuse this with the Patents of new drugs, the majority of the patents here are for generics, and the Biologics patent granted is yet to be commercialized.

This also includes patents of customers as the company offers CRO, CDMO services.

Patents Filed by Shilpa Medicare
Patents Filed by Shilpa Medicare

The good thing here is that the company is also investing a lot in R&D and patents although majorly for generics at present but advancing in new drug patents as well.

Manufacturing and R&D centers of Shilpa Medicare

Manufacturing Units of Shilpa Medicare
Manufacturing Units of Shilpa Medicare

The company has 5 manufacturing facilities for APIs and formulation products in India and 1 manufacturing facility for APIs in Austria. The oncology formulations are manufactured in Jadcherla Unit.

Sales Geography

Geography wise Revenue Breakup
Geography-wise Revenue Breakup

As we can see the company sells its products in regulated markets like the US, Europe, Japan, Russia, South Korea, and emerging markets like Brazil, Mexico, India, etc..

Location wise break-up
Location wise break-up

India contributes 36.2% of sales(Oncology and Non-oncology), USA and Europe being regulated market contribute 44% of sales.

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The company is well-diversified geographically and expanding in Russia, Canada, Spain, etc.

Historical Performance of Shilpa Medicare

Financials of Shilpa Medicare
Financials of Shilpa Medicare

The company has performed well last year but before that performance has been subdued, revenue rose from FY16 to FY18 but fell in FY19 and had a good comeback in FY20 due to the formulation business doing exceptionally well and APIs too had good growth.

A similar trend exists in bottom-line performance.

APIs have dominated the sales but as we can see formulation business had tremendous growth and the company is targeting 4x sales of formulation in FY21 YOY.

Q1 Standalone Result

Q1 sales rose 39% supported by 78% growth in formulations business and 33% growth in API business. EBITDA margin improved from 26% to 37%, bottom line PAT had 230% growth.

Also Watch: Shilpa Medicare Fundamental Analysis

Recent Updates

  • Increased capacity of API facility for Tranexamic Acid by nearly 100%. This is the non-oncology API and sales are major to India and Europe at present.
  • Acquired FTF Pharma which offers integrated drug development services.
  • Established wholly-owned subsidiaries in Canada & Spain to expand sales.
  • Launched 4 new products in the Oncology segment in the Indian market at affordable costs
  • Launched Green Tea Film, which is first of its kind and unlike the traditional green teas, the film completely dissolves and leaves no residues. The company is targeting sales of 25 crores in the first 2 years and 100cr in the next 5 years. The green tea was developed in-house and is patented.

Shilpa Medicare received a warning letter on October 8, 2020, from the USFDA for its Jadcherla facility, Telangana, and as we know that facility is used for oncology formulations.

It can have major impacts on the new launches and existing oncology formulation business but management has guided minimum impact.

We have to wait until Q3 results to see the clear impact of this on the formulation business. The company is actively working with USFDA to get it resolved.

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This news caused the stock to fall 12% in a single day and it is a big negative.

Valuations of Shilpa Medicare:

Currently, the stock is trading at 477 RS and with a PE of 15.4 against the industry peers of 37 but that is because the future earnings could be impacted due to USFDA warning and the company is small.

The Price to book is 2.68 which is decent.

Final Verdict

The company is good and having a niche focus on Oncology with global leadership and advancing well backed by R&D and patents.

USFDA warning could impact the oncology formulation earning and that would cause weakness in the stock in the short term.

Valuations are not very expensive so it can be accumulated at lows for the long term, but it is always advisable to put money in multiple pharma companies instead of just one as regulatory risks always exist and one such warning can cause the stock to fall 30% or more.

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Cover Image: The Guardian

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