Poly Medicure Ltd (BSE Code 531768) - HBJ Capital's Street Smart Mid Cap Multibagger Stock Reco for...

8/7/2019 Poly Medicure Ltd (BSE Code 531768) - HBJ Capital's Street Smart Mid Cap Multibagger Stock Reco for Apr'10

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Poly Medicure Ltd is a manufacturing company producing medical disposables for thehealthcare industr . Research efforts ut-in b the com an in last several ears has led to

HBJ Capital Services Pvt LtdWeb: www.hbjcapital.comMail: [email protected]: +91 98867 36791

Street Smart" - Mid Cap Multibagger for Apr 2010

it filing more than 70 patents out of which it has already got 10 in its kitty with 2 being in

worlds largest medical disposables market viz., USA. The company is expanding its productportfolio and is entering new markets as well.


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Best Buying Price

2 Phase Buying Strategies Suggested [Always buy in SIP ways]

1st

Phase : Buy at the current price range Rs 108 112 [50% of investment] n ase : w en t e pr ce a s own to s o nvestment

Average Buy Price Recommended = Rs. 100 [(110 + 90) / 2]

>>>Expect at least 4-5 times returns in next 3 years timeframe!!!


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HBJ Cap is growingfaster than ever.

HBJ Capital can be your50x in 3yearsinvestment.Ask how?

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HBJ Capital Specialists in discovering multibagger stocks is launchingmore & more innovative products & services with single focus on long term

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Company in Indiaby 2012, the same

year we have planned to get it listed at BSE/NSE.


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Table of ContentsFrom the desk of CEO, HBJ Capital.Poly Medicure Ltd Page#7Key Positives Page#11Investment Rationale Page#17Financial Statements Page#26

Management Team Page#33 es pr ce o uy a e

Challenges/Risks involved Page#38Know more about Your - HBJ

Capital.


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Dear Investors,

There is no denying that today the whole world is increasingly

focusing on affordable healthcare. Due to focus on reducing costsplastics have come to the fore front of medical innovation. In acountry like India where the focus on improving the healthcaresystem is increasing by the day, the medical disposables industrywill have a major role to play to help achieve the final goal.

With a population of 1.15 billion, India will need to at least 2

million beds in the next 10 years in order to attain a modest targetof 2 per 1000 of population. With a total healthcare value of Rs

From the desk of CEO, HBJ CapitalThe world is going to focus on

making healthcare affordable forall. It is being seen that many of the

international players are setting uptheir R & D facilities, manufacturingplants in India due to its significant

cost advantage.Many of the small Indian

companies have already startedexporting medical equipments to

the rest of the world!!

1800 billion, the potential for medical disposables equipment is,indeed large.

The Indian domestic medicare devices industry is expected to growfrom Rs 60 billion to Rs 76.5 billion in four years. The overall

market is estimated at Rs 150 billion. Apart from the electronicinstruments and major equipment, substantial progress has beenregistered in the area of a number of medical accessories andconsumables. These include disposables - syringes, blood bags,cannulae, IV fluid sets, gloves. In most of these items, while thedemand is increasing fast, India is becoming increasingly self-sufficient. Fairly large quantities are also being exported.


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ContdThings are already improving for Indian Medicare equipment manufacturers. India is being looked upon by thewhole world to provide low cost solutions with regards to medical accessories, consumables & disposables. ManyIndian companies have been able to sell their products across the globe due to price advantage.

With the new US healthcare bill focusing on reducing healthcare costs, these small Indian companies could have agood time in the coming few years.

And we believe that its just time for our Street Smart company for this month to make use of the wonderfulopportunity. We are happy to select Poly Medicure Ltd as the Street Smart for the month of Apr 2010.

Poly Medicure Ltd. is a medical disposables manufacturing company. The company is currently availableat a market cap of 122 Crore and at a valuation of 9.8 times TTM earnings. We are expecting anearnings growth of around 40% CAGR in the next 3 years for the company. At such growth levels, thecompany should be able to post earnings of more than 40 Crore by FY 13.

Considering a moderate valuation of 13 on TTM earnings would give a market cap of around 520 croreand thats a 4.4 bagger from the current levels.

Happy Investing!

RegardsKumar Harendra, CEO, HBJ Capital Services Pvt Ltd, www.hbjcapital.com#912, 1st F Main Road, Girinagar 2 nd Phase, BSK 3rd Stage, Bangalore 85Call : 098867 36791 or Mail : [email protected]


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Poly Medicure Ltd Snapshot (Apr 28 th 2010)CMP Rs. 111.65 (The share price of the company hasrebounded smartly since its lows last year and is closer to itslife time highs.

This is an indicator of the strong business fundamentals of the company and the new found opportunities for thecompany).

MCap 122.95 crore (We are expecting an earningsgrowth of around 40% CAGR in the next 3 years for thecompany.

At such growth levels, the company should be able to postearnin s o more than 40 Crore b FY 13 and assumin a

Promoters holding 47.81% (The promoters havemaintained their holdings in the company for the past several

years. Also, we believe that there could be substantial amountof indirect holdings in the company.)

Pledged shares 0%

Total # of shares 1,09,06,250 shares

Liquidity Low to Medium

Face Value Rs. 10 valuations of 13 gives a market cap of more than 500 crore

for the company)

PE 9.8 (We find that the current valuations are impressiveconsidering that it on TTM earnings.)

EPS Rs. 11.5 (based on the TTM basis)

52 Week High / Low 125 / 36.75 (The managementrecently came out with a 1:1 bonus issue for the company.

And the stock made its recent highs close to the bonus issue.)

u or ze ap a s. croreIssued Capital Rs. 5.5 crore

Website: http://www.polymedicure.com


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Poly Medicure Ltd

Poly Medicure Ltd is a manufacturing company producing medical disposables for the healthcare industry.

Founded in 1995 by a team of technocrats dedicated to the idea of providing the benefits of modern healthcare tothe mankind at affordable price, PML today has grown into one of the most dynamically versatile manufacturers of disposable healthcare products in the region with over 60 different products.

The company uses modern manufacturing techniques to provide the best quality products. It exports its products to50 countries currently with Europe being the major market at present.

Research efforts put-in by the company in last several years has led to it filing more than 70 patents out of which ithas already got 10 in its kitty with 2 being in worlds largest medical disposables market viz., USA.


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Product RangeInfusion Therapy - In medicine, infusion therapy deals with all aspectsof fluid and medication infusion, usually via the intravenous route. Thesimplest form of intravenous access is by passing a hollow needlethrough the skin directly into the vein.

This needle can be connected directly to a syringe (used either towithdraw blood or deliver its contents into the bloodstream) or may beconnected to a length of tubing and thence whichever collection orinfusion system is desired.

Manufactured from tested bio-compatible materials offering longer

indwelling time. PML manufactures various different types of equipments for infusion therapy.

Central Venous catheter - In medicine, a central venous catheter("central line", "CVC", "central venous line" or "central venous accesscatheter") is a catheter placed into a large vein in the neck (internal

jugular vein), chest (subclavian vein) or groin (femoral vein). It is usedto administer medication or fluids, obtain blood tests (specifically the"mixed venous oxygen saturation"), and directly obtain cardiovascularmeasurements such as the central venous pressure.

Anesthesia - PML manufactures different types of catheters for directadministration of oxygen into the patients body.


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Product RangeUrology - PML manufactures various different kinds of products forcollection of urine & urine samples.

Gastroenterology - PML manufactures various different kinds of products for treatment of gastro intestinal problems.

Various kinds of products are manufactured for introduction of nutrition& aspiration of intestinal secretion.

Blood management - PML manufactures various products for bloodtransfusion, blood sample collection etc.

Surgery & Wound drainage - W ound drainage system suitable fordrainage under negative pressure post operatively with the options tooperate one or two catheters simultaneously.

Dialysis - PML manufactures various products which are required forpatients undergoing dialysis.

Others - PML manufactures various other safety devices used forvarious treatments.


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Modern Manufacturing facilities

POLYMED manufactures its products using state of the art technology in ultra modern facilities covering over300,000 square feet of manufacturing floor space with about 50,000 square feet of clean rooms of class 100,000to class 1,000.

A tool room with modern facilities & CNC machines supports the manufacturing processes. A high degree of automation and an effective process control helps in delivering consistent product quality.

Polymed has state-of-the-art manufacturing plants in Haridwar, Jaipur & Faridabad in India and one in China andone joint venture in Egypt.


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Highly trained personnel and a strong R and D

. ,experienced management provides guidance and support to the team of over 2000 people employed in differentactivities.

To keep pace with the ever changing requirements of the market, POLYMED has a fully staffed and highly equippedR & D section to design and develop new and innovative products. The R and D department of the company is

recognized by the Ministry of Science and Technology, GOI.

The company has been constantly innovative and on an average has been coming out with 10 new products everyear for the last 3 years. In the last 3 years alone, the research division of POLYMED has filed for more than 70patents. And in 2009, the company has received approvals from the US FDA for several of its new range of products including IV Catheter and Syringes.


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Geographic diversification

The company derives around 75% of the revenues from exports and the remaining comes from the domesticmarkets. While the company has been concentrating on overseas markets due to better margins, the company hasstarted tapping the huge domestic opportunity as well. There is enough headroom for growth in the domesticmarkets.

In the Overseas markets, Europe is the biggest market for the company and it contributes approximately 35% of total revenues. The company also derives substantial amount of revenues from Middle East and Africa as well. Inall, the company currently exports its products to more than 80 countries.

While this being the current scenario, the companys recent entry into US, the largest healthcare market in theworld augers well for the growth ahead and the geographic diversification of revenues.


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Quality AssuranceThe companys Quality system contains veryexhaustive series of physical, chemicalbiological and microbiological tests andinspection at various stage of themanufacturing cycle.

The company has adapted to thesurveillance of raw materials and itssuppliers, intensive process control of allmanufactured components and subassemblies to the final inspection and testing

of the finished products.

The company has been successful inimplementing a well documented QualityManagement system which has beenaccredited to SGS Yarsley InternationalCertification services along with ISOcertification and CE mark from DNV,Norway which makes the entire productrange compliant with International Qualitystandards.

Some of the companys products are US FDA510K approves.


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Indias Low Cost Labor Advantage

India is becoming a hot destination for the offshore manufacturing outsourcing. Number of foreign companieslooking to establish their own manufacturing facilities in India are increasing rapidly.

Labor costs are a large part of the total costs of a companys products . Since they are such a major part of whatmakes up the selling price, these costs must absolutely be kept down in order for a company to survive.

India has a huge advantage with regards to the quality of skilled & unskilled manpower that is available in thecountry.


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Market Evolution


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Indias Healthcare Expenditure as % of GDP

India currently has a very low spend on healthcare as a % of the total GDP. As on 2009 healthcare contributionwas around 5.5% of the total GDP. This number is very small as compared to the 16% spent by USA & 7-9% spentby European countries.

According to estimates, this number is going to increase significantly over the coming years.

It is crystal clear that with the fast commercialization process of the sector and up gradation of medical facilities, thepotential is sky high.


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Strong growth in demand With a population of 1.15 billion, India will need at least 2 million bedsin the next 10 years in order to attain a modest target of 2 per 1000 of population. With a total healthcare value of Rs 1800 billion, thepotential for medical disposables equipment is, indeed large.

The Indian domestic medicare devices industry is expected to growfrom Rs 60 billion to Rs 76.5 billion in four years. The overall market isestimated at Rs 150 billion.

With increasing demand for quality healthcare, corporate hospitalshave aggressive expansion plans to scale up their activities and have an

all India presence. They are creating great opportunities for medicaldevice companies.

The hospital sector is expected to grow at 15% p.a. for the next 5 yearsand will create huge opportunities for medical device companies.

Polymed has been active in scouting for partnerships with majorhospital chains. The company has already tie ups with few hospitalchains through which they provide the medical equipments for all thehospitals.

Other than private hospital chains, the company has also plans totarget private nursing homes.


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Focus on Domestic markets

During FY 2009 PML got 25% of its revenues from domestic sales. And, two years back the domestic markets were. ,

domestic opportunities.

During the last 1 year PML has started to market its products aggressively in the Indian markets. PML has openednew sales offices in Hyderabad, Chennai & Kolkatta. PML is planning to increase its domestic sales force by 25%during the year.

PML is also focusing on providing medical disposable equipments for the purpose of various state run healthcareprograms. PML expects to tie up with government of Maharashtra, Gujarat & Rajasthan for the same.

Within a couple of years, management expects domestic market to contribute 50 % of its sales up from 25 % itcontributes at present.


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US Healthcare Bill & India AdvantageThe reform bill which has recently been passed into law in the US hastwo key features. It increases health coverage and aims at the reductionin healthcare costs.

The bill increases the coverage to an additional 32 million uninsuredAmericans who make up about 10 per cent of the total US population.The bill prohibits insurance companies from excluding people with pre-existing medical conditions and dropping policy holders on account of coverage limits.

Secondly, the bill which is expected to cost US taxpayers $940 billion

over the next decade is expected to reduce the US fiscal deficit by $143billion.

With the recently announced bill healthcare companies in USA areunder tremendous amount of pressure to cut down their costs. It isbeing estimated that by 2012 India would be getting 70% of the R&Dwork to be carried out for various healthcare companies.

The trend of US based companies setting up their production base inIndia is on a rise.

Indian companies manufacturing quality & low cost healthcareproducts are at a significant advantage.


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Expansion Plans

PML is planning to expand its manufacturing capacity with an investment of Rs 40 crore in the next two years in aneffort to grab the market and contract manufacturing opportunities in the US and Europe.

PML currently has a capacity to manufacture 260 million pieces of medical devices per annum, is planning toexpand the current facility and will set up a new plant exclusively for exports to European Union markets. With theexpansion, the capacity will reach production of 400 million pieces of medical devices per annum.

The expansion of current facility, is in tune with the fast growing market demand in the country. Expansion will becompleted within 2010 even as the export oriented unit will be functional in 2011.

Around 50 per cent of the investment will be infused from the internal accruals whereas the rest will be based onloans.


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JVs & Acquisition Plans

In a recent interview the company management said that PML was mulling on acquiring a medical devicescompany with research and development focus in US, by spending around USD 20 to 30 million.

Poly Medicure Ltd (PML) is in talks with a European company to develop, design and manufacture safety medical

devices in the country.Any further developments on this front could significantly enhance the profitability for the company.


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Recent developmentsB Braun had recently initiated a series of cases against Poly Medicure inthe area of safety IV catheters. The Regional Court of Dsseldorf,Germany, which handles a significant part of patent infringement cases inEurope, has removed preliminary injunction which was issued in favor of B Braun Melsungen AG in November 2009.

With the removal of the preliminary injunction, Poly Medicure and itsdistributors can now sell the product in Germany. While, the charges of infringement on PML was already cleared in India, the same happeningin the home turf of B Braun is comforting .

PML had launched 2 niche products in Indian market viz., bloodcollection tubes & insulin syringes in May 2009. Both the productscommand a healthy domestic market share. The company expects tosignificantly increase revenues from these 2 products.

PML has got 5 USFDA approved products. 3 out of the 5 products i.e IVCatheter, Safety Scalp Vein Set and Safety Infusion Set, can easilycontribute revenues to the tune of Rs. 50 crs for the company.

The IV Catheter product manufactured by the company has a globalmarket of more than US$1 Bn. The IV catheter product manufactured byPML is much superior in quality & has been priced lower than its globalcompetitors.


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P and L statement Annual (Standalone)


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P and L statement Annual (Consolidated)The revenues of the company have been constantly increasingover the year. The increase in turnover is indicative of the factthat the products of the company are doing well. As thecompany derives 75% of its revenues from exports it can besaid that the products of the company meet global standards.

Also, during 2009 the company faced a loss of close to Rs. 10crs on account of rupee depreciation. The profitability marginswould have been much better if this loss would have beenreduced.

Going forward we expect the margins of the company toimprove significantly due to the launch of US operations &increasing focus on domestic markets.

We expect the company to post a Net Profit margin of close to12 to 13% going ahead. We expect the company to postrevenues of around 130 Crore for the FY 2010. We also expectthe company to grow its revenues at a CAGR of around 35-40% for the next 3 years leading to revenues of around 350Crore by FY 13.

We also expect the earnings to grow at a similar pace and thecompany should be able to post net earnings of more than 40Crore by FY 13.


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P and L statement - Quarterly

It can be seen that during the recent quarters the PAT margins have improved significantly. We expect the companyto post modest sales growth on a YoY basis.

Going forward we expect the company to post robust sales growth once the capex has been completed by the endof 2010. We also expect the US business to make significant contribution to revenues & improve margins during thenext few years. We expect the company to make an EPS of close to Rs.14/ for the year. This EPS has been calculatedon a 1:1 bonus which the company has issued recently.


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Balance Sheet - Standalone


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Balance Sheet - ConsolidatedThe company has not diluted much equity in the last5 years to manage its growth. The Debt to equitylevel for the company has been reasonable in the lastfew years.

Going forward the company plans to raise some debtfor its future expansion projects.

Total Gross Block of assets of the company has seen astrong growth over the years.

Over the years the company has been able to achieveits scheduled capex plans on time without anysignificant delays. We expect the same to continuegoing ahead.

The current assets of the company have increasedreasonably with the increase in sales over the years.

Current ratio for the company is very comfortable at2.1. This indicates healthy liquidity for the company.


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Financial RatiosDebt to Equity ratio of the company is comfortable. Itprovides room for increasing leverage to achieve growth inthe coming years.

Fixed assets ratio has decreased due to lower capacityutilization. We expect this ratio to increase going forward.

Despite the drop in profits for FY 2009 the return ratioslook healthy for PML.

Debtors days & Inventory turnover days are pretty healthy

for PML.Interest coverage ratio for the company has declined overthe years. We believe that going forward the ratio should bequite comfortable as the company had suffered from hugeforex losses during the year.

Profitability margins for the company should improve goingforward due to better utilization of fixed assets & due tocontributions coming in from the high margin US markets.


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Key PlayersHimanshu Baid - Himanshu Baid is currently Promoter andManaging Director in Poly Medicure Limited from 20thSeptember 1995 till date for last 12 years.

Mr Baid, after completing his BE, joined Philips in Germanywhere he gained vital experience in international trade. His stintin Philips helped him understand the psyche of internationalmarketers.

He also worked as Chief Executive in Polycon InternationalLimited making plastic moulded products and looked after the

day-to-day techno-commercial affairs of that Company fromJune 1990 to October 1994.

Himanshu worked as a Director in Polycure Martech Limited &Jai Polypan Private Limited from November 1994 to August1995.

Rishi Baid - Rishi Baid, Executive Director of the Company, age37 years, is B.S.M.E and M.S.M.E. (Mechanical) from West

Virginia University, U.S.A.

Prior to joining Poly Medicure, he served Miles Pharma Inc. USA.


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Share Holdings patternThe promoters hold 47.55% stake inthe company. No share pledgingactivity has been done by thepromoter. Promoter holding is verycomfortable.

The promoters have beenmaintaining their holdings for thepast several years. We believe thatthere can be substantial amount of indirect holding in the company.

The company had recentlyannounced a 1:1 bonus issue afterwhich the total number of outstanding shares have gone up forthe company.

Institutions does not have anyholdings currently. We believe that asthe company grows its revenues andthe market cap improves, institutionswill be taking stakes in the company.


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B i


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Buying strategy

Post the split, the stock has showed strong signs of strength and has been quick to rebound. We believe thatthere could be a consolidation at the current levels for a while.

Also, the stock has a very strong support at around 90 levels and a range of 88 to 92 can be a very goodsecond entry point in the counter.

Hence, we advise a 2 phase buying strategy one at the current levels and the other between 88and 92 levels.


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h ll k l d


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Challenges / Risks involvedFollowing are some of the key risks that could derail our estimates andexpectations

Raw material prices Plastic granules is the major raw material requiredby the company. Other major raw materials required by the company arealso plastic based products.

As we know that plastic prices are based on crude oil prices, any increase incrude prices can adversely affect the profitability of the company.

Rupee Appreciation Currently, the company derives 75% of its

revenues by way of exports. Any appreciation in rupee can have a negativeimpact on the earnings of the company.

However, the fact that the company imports 70% of its raw materialprovides a natural hedge to the company to a huge extent. Also, the shareof domestic revenues has been on a constant rise.

Small Players The company operates in business which has a lot of smalland unorganized players that provide a competitive threat to the company.

However, the industry is witnessing a increase in market share of organizedplayers and this augers well for a company like Poly Medicure.


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Disclaimer This document is not for public distribution and has beenfurnished to you solely for your information and mustnot be reproduced or redistributed to any otherperson. Persons into whose possession this documentmay come are required to observe these restrictions.This material is for the personal information of theauthorized recipient only.

The recommendation made herein does not constitute anoffer to sell or solicitation to buy any of the securitiesmentioned. No representation can be made thatrecommendation contained herein will be profitable

or that they will not result in loss. Informationobtained is deemed to be reliable but do notguarantee ts accuracy an comp eteness. ea ers us ngthe information contained herein are solely responsiblefor their action.

HBJ Capital, or its representative will not be liable for therecipients investment decision based on this report.HBJ Capital, officers, directors, employees or itsaffiliates may or may not hold positions in thecompanies /stocks mentioned herein.


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