IOLCP Ltd. - Hem Securitiesrenowned clients- Ranbaxy Labs, Dr. Reddy, Cipla, Uflex, ITC, Asian...

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www.hemsecurities.com Company Report

IOLCP Ltd. 17th December 2018 BROKING | INVESTMENT BANKING | RESEARCH | DISTRIBUTION | DEPOSITORY

Recommendation BUY

Target(3-4 months) 220

Price 164

Key Highlights:

BSE CODE 524164

NSE CODE IOLCP

Equity Capital(Cr.) 56.21

Face Value(Rs.) 10.00

Market Cap (Rs. Cr.) 921.77

Free Float (%) 58.81

52-Week Range 181.90-68.45

Industry P/E 29.30

COMPANY DESCRIPTION: IOL Chemicals and Pharmaceuticals Ltd. dates back to 1986 and is Headquartered in Ludhiana, India. The company is one of the leading generic pharmaceutical company and is a significant name in the Organics chemicals space. It has wide scope across many therapeutic categories like Pain Management, Anti-diabetic, Anti- hypertensive, Anti- convulsants, etc. It also provides specialty chemicals for use in flexible packaging, pharmaceuticals, textile, food processing, pesticide and paint industries. The company has presence across almost 56 countries. It has a bunch of renowned clients- Ranbaxy Labs, Dr. Reddy, Cipla, Uflex, ITC, Asian Paints, Pidilite to name a few. It has also increased the pharma’s share in its business by 7%.

Annual Trends

Particulars 2018 2017 2016

Net Worth 215.74 188.70 185.13

Debt/Equity 1.96 2.37 2.44

Net Sales 983.30 710.65 580.42

OPM (%) 9.73 10.36 3.95

NPM (%) 2.82 0.66 -6.90

Cash Profit Margin(%)

5.79 4.46 -1.60

RoA (%) 3.40 0.59 -5.43

RoCE (%) 15.03 11.57 3.68

RoE (%) 13.70 2.50 -20.72

BV/Share 38.38 33.57 32.94

EPS 4.93 0.83 -7.12

Quarterly Trends

Particulars Sep 2018 June 2018 March 2018

Net Sales 422.91 361.84 287.52

PAT 38.40 14.41 11.49

OPM (%) 17.20 9.81 9.65

NPM (%) 9.08 3.98 4.00

It is the SECOND largest producer of Iso Butyl Beneze(IBB) in the world with 30% global share. This chemical is used as the raw material in manufacturing of Ibuprofen, the golden product of the company. IBB is hence, manufactured for in-house as well as for direct sale. The company manufactures chlorinated compounds like Mono-Chloro Acetic Acid, Isopropyl Chloro Acetate & Acetyl Chloride as part of backward integration for the manufacturing of Ibuprofen. The state-of-art facility is based on green chemistry as by-product of one is used as raw-material of other, leading to zero waste. Quarterly results of the entity have been commendable. The Total Revenues of the company rose from Rs 218.71 cr in Sep 2017 quarter to Rs 428.70 cr in Sep 2018 quarter. It also grew by 17.32% on QoQ basis. Net Profits increased by 766.82% on YoY basis, rising from Rs 4.43 cr to Rs 38.40 cr. EPS of the company stood at Rs 0.79 per share in the quarter ending in Sep 2017, Rs 2.56 per share in June 2018 quarter compared to Rs 6.84 per share in Sep 2018 quarter.

(Rs. in Crores)

(Rs. in Crores)

www.hemsecurities.com

Research Analyst : CA Surbhi Mittal



SEGMENT PERFORMANCE Business operations of the company are expanded across two segments of Bulk Drugs- APIs and Specialty Industrial Chemicals. API segment majorly includes manufacturing of Ibuprofen whereas Specialty Industrial Chemicals includes manufacturing of Ethyl Acetate, Iso Butyl Benzene (IBB), Mono Chloro Acetic Acid (MCA) and Acetyl Chloride.

1. Active Pharmaceutical Ingredients (APIs)- The company is growing its relationships with foreign and major Indian generic companies for sale of its APIs. Key markets in its portfolio are Europe, Latin America, Africa and Middle East. Major API in its bucket is IBUPROFEN- a medication in the non-steroidal anti-inflammatory drug (NSAID) class that is used for treating pain, fever, and inflammation. The company received the approval from USFDA in July 2015 for Ibuprofen manufacturing facilities. The company has been accredited by various regulatory authorities across the globe like USFDA, CEP Certification, EUGMP & WHO GMP.

2. Specialty Industrial Chemicals- The company’s chemical business is bifurcated into three varied categories having large application, which can be highlighted as below:

Solvents: The company is among the leading manufacturers of Ethyl Acetate (a green solvent) in India. It is used solvent for high resolution printing inks and laminated adhesives in all kind of flexible packaging and plastic films, owing to its fast evaporating properties. 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, paints & coatings, packaging etc. Asia pacific is expected to dominate the market as it has become attractive destination for the foreign investment in aforementioned industries.

Chlorinated Compounds: The company manufacture chlorinated compounds like Mono-Chloro Acetic Acid, Isopropyl Chloro-acetate & Acetyl Chloride for the manufacturing of Ibuprofen.

Petrochemicals: Under this segment, IOLCP manufactures IBB which is the key starting material for the Ibuprofen and manufactured for both in-house use and direct sale. SEGMENT INFORMATION: (Revenue from sale of products) (a) Business Segment-

Segment 2018 2017

Drugs 620.98 397.96

Chemicals 353.19 311.32

Unallocable 9.13 1.37

(b) Geographical Segment-

Geography 2018 2017

India 632.98 483.81

Spain 30.44 6.68

Brazil 24.00 11.38

China 17.39 12.16

Other countries 278.49 196.62

The company does not have any manufacturing facilities outside India.



ACTIVE PHARMACEUTICAL INGREDIENTS(APIs) SPECIALTY CHEMICALS

IBUPROFEN BP, IBUPROFEN IP,

IBUPROFEN Ph. Eur, IBUPROFEN USP

ETHYL ACETATE

METFORMIN

HYDROCHLORIDE

ISO BUTYL BENZENE

LAMOTRIGINE

ACETYL CHLORIDE

FENOFIBRATE

MONO CHLORO ACETIC

ACID

CLOPIDOGREL BI

SULPHATE PRODUCT RANGE

Tablet

Tablet Beaker

Tablet Beaker

Tablet Beaker

Tablet Beaker



Milestone of IOL Chemicals and Pharmaceuticals Limited

In order to know the present situation and understand future prospects, past performance of the company

will help in setting the benchmark. The past performance has been alluring!....

PAST PERFORMANCE(Earnings)

1986: Incorporation of IOL Chemicals and Pharmaceuticals Limited

1991: Commencement of Acetic Acid Production

1996: Commencemnt of Ethyl Acetate Production

1999: Commnecement of Acetic Anhydride Production

2000: Commissioned Ibuprofen Plant

2006: Commissioned Co-Generation Plant

2009: Commissioned Iso Butyl Benezene(IBB), Mono Chloric Acetic Acid and Acetyl Chloride Plant

2012: Commissioned Multi-Purpose Plant

42.70%

632.60%

18.60% 21.60%17.50% 21.60%

0.00%

100.00%

200.00%

300.00%

400.00%

500.00%

600.00%

700.00%

Past 5 Years Last 1 Year

IOLCP Chemicals Market



Performance of the company has been good due to the following reasons:

IOL Chemicals and Pharmaceuticals has delivered over 20% year on year earnings growth in the past 5 years.

The company’s 1-year earnings growth exceeds its 5-year average (632.60% vs 42.70%).

The company’s earnings growth has exceeded the Indian Chemicals industry average in the past year (632.60% vs 21.60%).

It has efficiently used shareholder’s funds last year (RoE > 20%).

It used its assets more efficiently than the Indian Chemicals industry average last year based on RoA.

The company became profitable in the last 3 years. This is considered to be a significant improvement in its use of capital (RoCE).

The level of debt compared to Net Worth has been reduced over the past 5 years (214.40% vs 130.12% today).

Debt is well covered by operating cash flows (34.20%, greater than 20% of total debt).

BUT The level of debt (130.12%) is still higher than the Net Worth (greater than 40%).

Interest payments on debt are not well covered by earnings (EBIT is 2.8x annual interest expense, ideally 3x coverage).

Also, the company has its future plans which will not only support the expansion of its current business but also welcome the new molecules and plans warmly.

WHY SHOULD I

CHOOSE YOU OVER

YOUR COMPETITORS?

Our USP is that we have the

largest capacity for

manufacturing of our flagship

product- Ibuprofen in the

whole wide world, with the

backward integration of the

processes in order to follow the

policy of Zero-waste in the

processes.



Future growth of the company

Company has setup Unit III to manufacture Fenofi brate, Clopidogrel and Lamotrigine with project cost of Rs 16.48 crore met through internal accruals in FY18.

Company has setup Unit IV for manufacturing

Metformin in FY18, an anti-diabetic drug with a

capacity of 3000 MT per annum with project

cost of Rs 10.02 crore which was financed

through internal accruals.

The company has also enhanced installed

capacity of Ibuprofen from 7200 TPA to 10000

TPA by debottlenecking and re-engineering the

plant in the month of August 2018. It is to

further rise to 12000 TPA this financial year.

The company will invest about Rs 100 cr every

year for two years to increase the capacity by

30% every year, to meet out the growing

demand of Ibuprofen. Backward integrated

products will also be increased accordingly. This

investment will come from Equity, internal

accruals and loans.

10APIs are in the advance stage of development.

Government is planning to set up an electronic

platform to regulate online pharmacies under a

new policy.

The company has introduced 4 new molecules- Metformin, Lamotrigine, Fenofibrate, Clopidogrel. The revenue for these is expected to increase from 10-15% at present to 30% in the..

next 2-3 years

‘PHARMA VISION 2020’ Was unveiled by Government of India, aiming at making India a global leader in end-to-end drug manufacture.

Varied faces of the company from the viewpoint of the industry as a whole:

OPPORTUNITIES V/S THREATS OPPORTUNITIES THREATS

Basic intermediates for drug division are produced in house which saves heavy costs and makes communication better.

Large domestic market, with good potential for growth.

Forward Integration of products helps to track the trail effectively.

Increased visibility resulting in easy penetration in global market supports good market share.

Cost of finance in India is very high, which is a constraint for pooling in money for the operations.

Cut throat competition in generic market, wherein Major competitors in the Ibuprofen business are: Peerigo Company, Boots Company, Albemarle, Alveda Pharmaceuticals, Amneal, Germin MED, CSL Ltd., Pfizer, Reckitt Benckiser.

Setup Unit IV

Setup Unit III

Future Plans

Ibuprofen capacity

enhanced

API develop-

ment

'Pharma Vision 2020'



Carrying on the opportunities and threats, the company has presence across 56 countries in the world

wherein it has left/ is leaving a mark with its performance. Its geographical presence can be understood

via the below graph:

FINANCIAL PERFORMANCE

-30

-20

-10

0

10

20

FY14 FY15 FY16 FY17 FY18

EPS(Rs) CEPS(Rs)

0

10

20

30

40

50

60

70


BVPS(Rs)

PRESENCE ACROSS THE GLOBE

Europe Belgium, Netherlands, Spain, Switzerland, UK.

South America Argentina, Colombia, Chile, Brazil, Peru.

Australia Australia

Asia Bangladesh, China, Indonesia, Iran, Syria, Thailand, Taiwan, Turkey.

Africa Egypt, Ghana, Nigeria, Africa.



ANNUAL FINANCIAL STATEMENTS:

Statement of Profit and Loss (Rs. Cr)

Particulars FY14 FY15 FY16 FY17 FY18

Net Sales 563.50 384.72 580.42 710.65 983.30

Growth (%) -- (31.73) 50.87 22.44 38.37

Expenditure 467.76 373.46 529.04 608.45 859.34

EBITDA 95.74 11.26 51.38 102.20 123.96

Growth (%) -- (20.16) 41.66 15.01 41.23

EBITDA Margin (%) 16.99 2.93 8.85 14.38 12.61

Depreciation 31.63 28.91 29.69 29.84 30.21

EBIT 64.11 (17.65) 21.69 72.36 93.75

EBIT Margin (%) 11.38 (4.59) 3.74 10.18 9.53

Interest 60.34 59.11 61.47 67.68 64.35

Other Income 1.31 1.32 1.23 1.25 1.90

Exceptional Items 0.00 0.00 0.00 0.00 0.00

PBT 5.08 (75.44) (38.55) 5.93 31.30

Provision for Tax 1.78 (8.78) 1.48 1.26 3.60

PAT 3.30 (66.66) (40.03) 4.67 27.70

Growth (%) -- (2120.00) (39.95) (111.67) 493.15

PAT Margin (%) 0.59 (17.33) (6.90) 0.66 2.82

-200

0

200

400

600

800

1000

1200


Net Revenue PAT

-2500

-2000

-1500

-1000

-500

0

500

1000

FY15 FY16 FY17 FY18

Net Revenue Growth(%) PAT Growth(%)



Balance Sheet (Rs Cr.)


Equity share capital 28.82 53.65 56.21 56.21 56.21

Preference share capital

20.01 0.00 0.00 0.00 0.00

Share Warrant 0.00 5.99 0.00 0.00 0.00

Reserves 160.42 153.56 128.92 132.49 159.53

Long term debt 243.34 285.49 304.43 302.19 291.79

Net Deferred Tax liability

12.14 0.38 0.00 -7.96 -11.42

Short term debt 276.83 208.54 282.93 327.67 320.46

Sources of funds 741.56 701.62 772.49 810.60 816.57

Net Fixed Assets 410.61 402.82 399.49 373.88 405.64

CWIP 33.06 4.21 4.31 21.26 6.95

Long term investments 0.00 0.04 0.04 0.05 0.00

Other non-current assets

16.71 11.05 11.78 0.75 1.53

Inventory 192.23 213.42 227.94 262.63 207.45

Trade Receivables 49.26 32.67 87.26 112.77 140.71

Cash and cash equivalents

11.45

12.70 11.94 16.81 19.22

Other current assets 28.24 24.71 29.73 22.45 35.07

Uses of funds 741.56 701.62 772.49 810.60 816.57

Cash Flow Statement (Rs Cr.)


PBT 5.08 (75.44) (38.55) 5.93 31.30

Adjustments 86.37 81.73 83.94 95.92 88.83

Working capital adjustment

(12.51) (29.34) (11.03) (13.76) 0.45

CFO 78.91 (23.47) 34.36 87.03 114.22

CFI (12.31) (4.79) (39.01) (22.78) (50.38)

CFF (65.46) 26.19 (7.36) (63.47) (64.86)

Net Increase/decrease in cash & cash equivalents

0.60 (2.07) (12.01) 0.78 (1.02)

Opening Balance 14.46 15.06 12.99 0.98 1.76

Closing Balance 15.06 12.99 0.98 1.76 0.74



Price movement of the stock:

Peer Comparison:

Company No. of Equity shares O/s

PATM%(as on 30.09.18)

OPM%(as on 30.09.18)

EPS(as on 30.09.18)

ROE%(as on 30.09.18)

P/E Market Cap (Rs cr)

IOLCP 5.62 9.08 15.84 6.84 14.30 12.61 921.77

Aurobindo Pharma

58.59 12.02 18.31 6.50 3.60 31.35 42583.77

Ajanta Pharma 8.85 22.37 34.14 11.83 4.76 19.37 9649.52

Syngene 20.00 18.68 32.61 3.95 4.95 36.61 11480.00

FDC Ltd. 17.52 16.08 25.32 2.47 3.18 18.69 3120.07

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%


ROE(%)

ROE(%)

0

0.5

1

1.5

2

2.5

3


Debt/Equity

Debt/Equity

JUSTIFICATION: The company is in its growing stage. Looking into the way the company is expanding, we expect that the company will be at par to its peers in the future. This is the right time to invest in a company that has good growing prospects.



RENOWNED CLIENTS-



HEM SECURITIES LIMITED

MEMBER-BSE, CDSL, SEBI REGISTERED CATEGORY I MERCHANT BANKER

SEBI Registration No For Research Analyst: INH100002250

MUMBAI OFFICE: 904, A WING, 9 FLOOR, NAMAN MIDTOWN, SENAPATI BAPAT MARG,

PRABHADEVI STATION, LOWER PAREL, MUMBAI-400 013 PHONE- +912249060000

JAIPUR OFFICE: 203-204, JAIPUR TOWERS, M I ROAD,

JAIPUR-302001 PHONE-

0091 1414051000

GROUP COMPANIES

HEM FINLEASE PRIVATE LIMITED

MEMBER-NSE

HEM MULTI COMMODITIES PRIVATE LIMITED

MEMBER-NCDEX, MCX

HEM FINANCIAL SERVICES LIMITED

NBFC REGISTERED WITH RBI



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Disclosure of Interest Statement

1. Analyst Ownership of stock No

2. Hem & its group companies ownership of stock No

3. Hem & its group companies director ownership of stock No

4. Broking relationship with the company covered No

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securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirect-

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IOLCP Ltd. - Hem Securitiesrenowned clients- Ranbaxy Labs, Dr. Reddy, Cipla, Uflex, ITC, Asian...

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