NEULAND LABS FUNDAMENTAL ANALYSIS ? THIS API STOCK ROSE BY 5 TIMES – Beat The Street

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COVER

  • About Company
  • History & Timeline
  • Business Overview
  • Why Rising ?
  • Peer Comparison & Valuation
  • Financial Performance
  • Outlook & Opinion

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About Company

For over 37 years, Neuland Labs has been at the forefront of manufacturing APIs through its cGMP manufacturing facilities, working with customers in close to 80 countries. Neuland Labs has developed more than 300 processes and 75 APIs and has filed over 898+ Regulatory filings in the US (57 active US DMFs), the European Union (EU) and other geographies. Its manufacturing facilities are inspected and approved by the U.S. FDA and other leading regulatory agencies. Its record of quality manufacturing and reliability is highlighted by cGMP certifications.

History & Timeline

Business Overview

Business Segment

Neuland is into business of manufacturing APIs ( Active Pharma Ingredients). This business is divided into three segments 1. Prime APIs 2. Niche/ Speciality APIs 3. CMS (custom manufacturing service).

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These are three business segments in which company works.

What is an API?

API (Active Pharmaceutical Ingredient) means the active ingredient which is contained in medicine to give intended effects of medicine. For example, an active ingredient to relieve pain is included in a painkiller. This is called API.

Key Hightlights

  • 15 successful US FDA inspections.
  • 75 APIs
  • R&D centre at Hyderabad.
  • 3 manufacturing plants in Hyderabad while Unit 3 has now become fully operational.
  • Total volume of around 731 KL (225 KL at Unit I, 310 KL at Unit II and 197 KL at Unit III) 

Market Reach

Neuland has a presence in over 80 countries with more than 75% of our revenues accounted for by exports. 

R&D Facility

R&D cost is 2% of Revenue. Capital Investment of ₹3.47cr during FY20.

Regulatory Filings

This means 898 applications filed for getting approval from authorities.
How these segments have performed in terms of revenue.

Prime API is highest revenue generating segment & CMS is highest profit generating segment.

Revenue contribution of top 5/10 products or customers at company level
Revenue contribution of top 5/10 products or customers in Prime API
Revenue contribution of top 5/10 products or customers in specialty API
Revenue contribution of top 5/10 products or customers in CMS
No. of CMS projects has increased in last 3 years. Neuland is focusing on late stage projects which have high success rate and low risk.

Why Neuland share rose by 525% in last 12M ?

1. EBITDA margin which is 13.7% for FY20 is at 19.7% for Q3 FY21 and management has given guidance that EBITDA margin may reach past 20% given strong uptick in CMS business.

2. Unit 3 has begun commercial operations with capacity utilization of 75%.

3. De-risking the supply chain by decreasing raw material dependency on China from 60% to 10% which has also led to cost reduction.

4. Neuland has developed some APIs in peptide space in which very few pharma companies are working and company wants to enter this space. Apart from this, there are some other products also which are in pipeline.

Extract from annual report on Peptide.

5. Big investors have raised their stake in Q4 FY21 (discussed later in detail).

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Financial Performance

In last 11 quarters 
A. sales have risen to ₹245cr from ₹154cr            
B. OPM rose to 19% from 6%  C. EPS rose to ₹20.84 from ₹0.44.
In last 11 years, A. Sales rose by 3 times from ₹278cr to ₹763cr with OPM rising to 13%-18% from 9%.
A. Equity Reserves has seen spectacular growth from ₹63cr to ₹734cr.  B. Borrowing has been stable around 230cr even business has seen growth.  C. CWIP to Asset conversion seems to be decent.

Peer Comparison & Valuation

Comparing with immediate peer Solara : Neuland is trading at expensive valuation

Shareholding Pattern Analysis

Promoters have marginally reduced their stake but FII has increased their stake. Known investor Mukul Agarwal has raised his stake in Q4.

Outlook & Opinion

Key thins to watch out :

  • EBITDA margin if sustain at 19-20%.
  • Growth in CMS and Specialty API business.
  • Unit 3 capacity utilisation.
  • Improvement in margins in Prime API.
  • Commercialization and significant success in pipeline products which are at development stage.

Though outlook and growth prospects remain positive for company but currently trading at expensive valuation.

~By CA Sudarshan Bhandari , Beat The Street

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Financial and capital market based blogs & videos which is managed and owned by Nimish & Sudarshan who have worked for big consultancy firms as research analyst. Both have deep knowledge of capital market and economy and having experience of more than 5 years in this field. Their aim is to bring unique and curated analysis to investors and public so that they can make informed decision.

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Beat The Street

Beat The Street

Beat The Street is a Financial and capital market-based blogger & Youtube platform that is managed and owned by Nimish & Sudarshan who have worked for big consultancy firms as research analysts. Both have a deep knowledge of the capital market and economy and having experience of more than 5 years in this field. Their aim is to bring unique and curated analysis to investors and the public so that they can make informed decisions. They share their analysis and opinion via youtube and blog.
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