IOL Chemicals & Pharma – A multibagger potential stock over the next 3 years
Established in 1986, IOL Chemicals and Pharmaceuticals Ltd (IOLCP) is a leading generic pharmaceutical company and a significant player in the organic chemical space. It has two business divisions – Chemicals and Pharmaceuticals.
Company is a major producer in the Speciality organic chemical space. It is one of the largest producers of Ethyl Acetate (87000 TPA) and ISO Butyl Benzene (IBB) in India with over 30% global market share. Ethyl Acetate is having varied uses in different industries like pharmaceuticals, flexible packaging and printing ink manufacturing, paints and adhesives etc. In line with this approach, company has added many MNC giants to its customer base. The key markets for chemicals segment are African countries, Middle East, SAARC Countries and Russia.
IOLCP has forward integrated Chemical business vertical to the pharmaceutical segment. The chemicals produced by the Company such as Iso Butyl Benzene (IBB), Mono Chloro Acetic Acid (MCA) and Acetyl Chloride are used in manufacturing of Ibuprofen. This IOLCP is the world’s only backward integrated Ibuprofen producer with capacity of 7200TPA. Company is currently exporting to Europe, Latin America, Africa, and the Middle East. Company got approvals from USFDA in FY16 and from EUGMP in FY17. It is exploring business in this markets and for the same it is expanding the capacity of from 7200TPA to 12000TPA in next two years with Rs.200cr. It will invest about Rs.100cr every year for two years to meet the growing demands of Ibuprofen. The company will also enhance the capacities of backward integrated products i.e. IBB, MCA and Acetyl chloride. Ibuprofen contributes 80% to the pharma division revenues.
The company has recently enhanced Ibuprofen capacity from 6200TPA to 7200TPA. It has also completed and commercialized another unit to manufacture Fenofubrate, Clopidogrel and Lamotrigine etc. with an investment of Rs.16.5cr met through internal accruals. Company is also in the process of setting up of a greenfield facility for Metformin which will be completed during the current financial year. Granules also expanding capacity for this product.
Company’s numbers have turned around in FY17 and posted excellent results of Q2FY18. For FY17, Company’s revenues grew 22% to Rs.710cr from Rs.582cr in FY16. It posted PAT of Rs.4.23cr against loss of Rs.40.03cr in FY16 fetching an EPS of Rs.0.75 and cash EPS of Rs.6.08. During Q2FY18, the net profit has increased by staggering 352% to Rs.4.43cr from Rs.0.98cr on 26% higher sales of Rs. 218cr fetching an EPS of Rs.0.79 and cash EPS of Rs.2.14. For H1FY18 PAT has increased by 333% to Rs.7.41cr from 1.71cr in H1FY17.
Besides excellent results, company has announced its expansion plan where in it plans to pump in Rs.200cr over the next two years towards capacity expansion. It plans to expand its flagship product Iboprofune’s capacity from 7200TPA to 12000TPA. It is also enhancing capacity of backward integrated products i.e. IBB from 9000TPA to 12000TPA, MCA from 7200TPA to 10500TPA and Acetyl chloride from 5200TPA to 8400TPA.
Company has posted Rs.800cr turnover for last 12 months. Company is consistently posting operating cash flows (Rs.77cr in FY17). Company’s market cap is Rs.450cr and it is trading at M.cap/sale of 0.56x. The stock price has corrected from 110 to 46 because of institutional selling. Indiastar Mauritius ltd which was holding 15% (88.5lakh shares) sold in the open market. The institutional selling pressure on the stock price is behind now. Currently company is trading at a price of Rs.80 which we believe is very attractive and risk reward is completely in favor of investors.