IOL CHEMICALS & PHARMA - Re-rating Candidate

(NSE Code: IOLCP, BSE CODE: 524164) (CMP: Rs.82.3)

COMPANY PROFILE

IOL Chemicals and Pharmaceuticals Limited (IOLCP) a one of the largest players in Specialty Organic Chemicals and Bulk Drugs (API’s), headquartered in Ludhiana (Punjab). IOLCP operates in two business segments, Specialty organic chemicals and Bulk Drugs with its manufacturing facility at Barnala (Punjab). IOLCP has its footprints in 56 counties and regularly supplying its high quality products to major pharmaceutical players like Sanofi Aventis (India and Hungary), Aristo Pharmaceuticals, Prati Donaduzzi E Cia Ltda (Brazil), Cipla, BASF (USA), UPL, Abbot India and ZIBO XINUA-Perrigo Pharmaceutical (China). With its backward integrated USFDA accredited Ibuprofen plant, IOLCP has emerged as favorable supplier abroad.

IOLCPL Product mix includes Pharma and Speciality Chemicals

IOLCPL Product mix includes Pharma and Speciality Chemicals – IOLCPL has 2 business divisions which include the Speciality Chemicals and API Pharma unit. Within the Pharma product basket, IOLCPL has the largest Ibuprofen Plant by capacity which is approved by USFDA and EDQM with a 17% global share. IOLCPL has a integrated plant with backward integration consisting of about 50% raw material cost having a installed capacity of 7200 TPA. In FY17, the Pharma business accounted for 55% of total revenues totaling Rs 411 crs with Ibuprofen accounting for 80% of the Pharma sales. Also IOLCPL makes other pharma products like Lamotrigene, Metformin HCI, Fenopfibrate and Clopidogrel Bisulphate. Within the pharma basket, IOLCP has well established customers like Sanofi Aventis, Abbott, Cadilla, Indoco Remedies, Granules, Aristo Pharma, Tabuk, Alkem Labs, Kern Pharma and Cipla etc.

It is the world's only backward-integrated Ibuprofen producer (7,200 TPA) that manufactures all intermediates and key starting materials at one location. It has augmented its pharma business by moving up the value-chain with entry into lifestyle drugs for pain management, anti-depressant, antidiabetic, anti-platelet and anti-convulsion.

IOLCP is diversifying its API products portfolio. Besides its multipurpose plant, it has a 17 MW power generation plant for captive consumption with adequate backups for trouble-free operations. It R&D lab is DSIR approved and is fully equipped to validate the existing processes.

Ethyl Acetate is having varied uses in different industries like pharmaceuticals, flexible packaging and printing ink manufacturing, paints and adhesives etc. IOLCPL’s key markets in chemicals are African countries, Middle East, SAARC Countries and Russia. Since inception, IOLCPL has been gradually enhancing its manufacturing capacities. Moreover, other chemicals produced by IOLCPL such as Iso Butyl Benzene (IBB), Mono Chloro Acetic Acid (MCA) and Acetyl Chloride are used in manufacturing of Ibuprofen. IBB, MCA and Acetyl Chloride are key starting materials for Ibuprofen where IOLCPL is a dominant player and is forward integrated with Ibuprofen plant. These chemicals are also directly or indirectly used in various industries viz. Pharmaceuticals, Dye, paints, flexible packaging, Ink, Drilling, etc

Within the speciality chemicals product basket, IOLCPL has well established customers like AkzoNobel, BASF, Sun Pharma, ITC, Strides Shashun, Granules, DIC, Nectar Life, UPL, Uflex, SinoChem Pharma etc. IOLCPL has established itself as largest producer of Ibuprofen in India and second largest in world. It is the only company in world with backward integration facility for Ibuprofen. In Iso Butyl Benzene also niche segment, IOLCPL is the second largest producer in world.

Moreover, IOLCPL has also received the European Directorate for Quality of Medicine and Healthcare (EDQM) – Certificate of Suitability (COS) and ANVISA certification from Govt. of Brazil. This enables the company to directly enter into European and Brazil market. IOLCPL is recognized as “TRADING HOUSE” from Ministry of Commerce and Industry, Government of India. Export sales of the company have a niche market for its products in overseas markets and accounted for Rs 196 crs in FY17 from Rs 132 crs last yearshowing a growth of 48% YoY and is presently selling into around 56 countries.

IOLCPL enjoys the following certifications to cater to the Export Markets –

·        USFDA Certification Year 2015, EUGMP Certification Year 2013.

·        ANVISA certification Year 2012,

·        Certificate of Suitability from EDQM for IBUPROFEN, CEP No. 316-2008

·        Certificate of Suitability from EDQM for LAMOTRIGINE, CEP No. 066-2013

·        Certificate of Suitability from EDQM for METFORMIN HYDROCLORIDE, CEP No. 188-2013

·        Certificate of Pharmaceuticals Product(COPP)-WHO-GMP for IBUPROFEN.Ministry of Health (MOH) approval by Japan/Philippines/ Iran / Ukraine.

·        Kosher & Halal Certificate for all finished products

·        Pre-Reach certification for all chemical products and Intermediates.

·        ISO9001:2008, 14001:2004 & 18001:2007

·        Certificate of Star Trading House Status for Export, from Govt. of India

PHARMA INDUSTRY OVERVIEW

Indian pharmaceutical industry is a highly knowledge based industry and is ranked world class in terms of technology, quality, purity, stability and international safety, health and environmental protection in production and supply of bulk drugs. Pharma sector plays a major role in the Indian economy as it caters to around 70% of the country’s total medicines demand including drug intermediates, bulk drugs, tablets and capsules.

The government of India has aggressively granted 100% FDI in drug & Pharma sector to establish various Pharma SEZs across the country. Exports have been the cornerstone of growth for Indian pharmaceutical industry, with overseas pharmaceuticals market particularly developed markets offering strong growth opportunities to domestic companies. Indian pharmaceutical industry is an important contributor to the foreign reserve of the country with around 50% of industry revenue coming from overseas market. The US market accounts for highest revenue for the Indian pharma industry as the country has the largest number of USFDAs approved plants for generic manufacture.

CHEMICAL INDUSTRY OVERVIEW

India’s chemical industry is one of the largest and most diversified industries in the country. It consists of several small industries that cover hundreds of segments. Chemicals are generally used to make a wide variety of consumer goods and are also used in agriculture, manufacturing, construction, and service industries.

The chemical industry itself consumes 26% of its own output. Major industrial customers include rubber and plastic products, textiles, apparel, petroleum refining, pulp and paper, and primary metals. With the chemical industry contributing indirectly to almost every sector of the economy, it plays a vital role in a country’s

economic growth.

Projects planned by IOLCPL in the current year and going ahead

•         During the year under review, IOLCPL has successfully completed commissioning of extra capacity for its chemical products like Lamotrigene, Metformin HCI, Fenopfibrate and Clopidogrel Bisulphate which was done at a cost of Rs 16.48 crs and was fully financed internally.

• Also IOLCPL is planning to set up a green field facility of producing a anti diabetic product namely Metformin which will done at its existing facility at a cost of Rs 10 crs which will also be funded fully by internal accruals.

• Further the IOLCPL management has also stated that it itends to further ramp up Ibuprofen capacity from 7200 TPA to 12000 TPA over the next 2 years as well as increasing the capacity of other ancilliary chemical products like Ethyl Acetate, MCA and Acetyl Chloride. The total cost is estimated at Rs 200 crs which will be funded by a mix of internal accruals, debt and equity.

However the management has also made it clear to us that it will be not be in a hurry to start capex immediately and will look at incremental capex as stated above only after it gets a optimal return on new invested capital and hence these plans as of now are only on the drawing board table.

FINANCIAL SNAPSHOT

It has an equity base of Rs.56.21crore that is supported by reserves of around Rs.133.15crore. For Q2FY18, IOLCP’s net profit zoomed 352 % to Rs.4.43crore on 26% higher sales of Rs.217.79crore fetching an EPS of Rs.0.79.

During H1FY18, its net profit soared 333% to Rs.7.41crore on 30% higher sales of Rs.433.10crore fetching an EPS of Rs.1.32 and CASH EPS of Rs.3.89.

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