Pharma Sector Archives

The story of this chemical company started on November 7, 2003 in Pune. Back then, it was called ‘Sri Distikemi Private Limited’, a very traditional name compared to what we know it today as. The name was changed to ‘Clean Science and Technology Private Limited’ in 2006 after its shareholders decide to adopt a more ‘sustainable’ and ‘clean’ method to manufacture chemicals.

Clean Science and Technology has come up with an IPO, starting on July 7, 2021. In this piece, we analyze the company’s business model and its financial health to determine if it has potential in the markets.

Business Model

Clean Science and Technology is a speciality chemical manufacturer that produces chemicals used for ‘special’ purposes. These chemicals can be used in manufacturing a sunscreen lotion, medicine, or even a bag of chips. Based on segmental revenue, the company manufactures the following chemicals:

Performance Chemicals (~69% of total revenue) – Mequinol (MEHQ), Beta-Hydroxy Acid (BHA).

Pharmaceutical Intermediates (~16% of total revenue) – Guaiacol, DCC

FMCG Chemicals (~12% of total revenue) – 4 MAP, Anisole

Other Products (~3% of total revenue)

The company has two manufacturing facilities near Kurkumbh (Maharashtra) and is all set to open the third one very soon. The company has already bought land for setting up a fourth facility, which is expected to be operational by 2023-24. Currently, it has a capacity of 29,900 million tonnes per annum (MTPA), with utilization at 71.94%.

Based on the table above, we get to know that the company is one of the LARGEST manufacturers of the list of speciality chemicals that they manufacture. The company earns most of its revenue from the sale of MEHQ, which is used in manufacturing acrylic fibres, paints and inks, adhesives, and super absorbent polymers.

Close to 69% of the company’s revenue comes from exports, and China is its largest customer. The company exports its products globally to Europe, the USA, China, Korea, Japan.

The top 10 customers contribute nearly 50% to the company’s total revenue. Key customers include Bayer AG, SRF Limited, Gennex Laboratories Limited, Nutriad International NV, and Vinati Organics Limited.

Financial Performance

The company has shown a healthy increase in revenue, profits, and asset value. Apparently, it seems that COVID-19 had a rather small impact on the company’s business, unlike other sectors. Rightly so, because the company manufacturers essential components used in the pharmaceutical industry, which saw a growth opportunity during the pandemic.

Looking at the vital financial ratios of the company, we know that the company saw a healthy rise in EBITDA Margins. It is also using its resources more efficiently as shown by the Return on Capital Employed (ROCE) figures. The company has given a healthy Return on Equity (ROE), which saw a decline during FY21 due to the impact of COVID-19

While comparing its performance with that of peers, we found that the company had the highest EBIDTA margin and Return on Net Worth (RoNW). Even though competitors such as SRF, Navine Flourine, and PI Industries have high revenue figures, they have not able to optimize costs and turn the figures into profit. Meanwhile, Clean Science and Technology has managed to give a bang for the buck (a good value for money), despite having a small market cap compared to its peers. Its business model seems rather sustainable and apt for international expansion.

IPO Details

The company traded at a Grey Market Premium of Rs 450 a day before its listing. Clearly, the company has caught the keen eye of investors, rightly so because of its attractive revenue model. Have you subscribed to the issue? Do you think the company can hit listing gains? Is it the right choice for long-term investment? Let us know in the comment section available on the marketfeed app.

Dr Lal PathLabs – Profile

Dr Lal PathLabs Limited is a consumer healthcare brand that specialises in diagnostic services in India. It has a national network that provides a wide variety of diagnostic and related healthcare testing and services to patients and healthcare providers. They are into various domains like core testing, patient diagnosis and the prevention, monitoring and treatment of disease and more.

They have 455 test panels, ~2,500 pathology tests and ~2,000 radiology and cardiology tests. From individual patients to the healthcare providers (hospital), they serve everyone. Dr Lal PathLabs is concentrated mostly in North India. 40% of their total revenue is generated from the Delhi & NCR region. The rest of North India (Amritsar, Dehradun, Jammu and more) contributes to a further 29% of the total revenues. The graph below shows their revenues accumulation based on Geography. Apart from this, they are not only in India but also in other countries like Bangladesh, Nepal and Kenya.

Bumper Returns During the Pandemic

(Weekly chart of Dr Lal PathLabs)

It took a pandemic for us to give pharma stocks the importance they deserve. Dr Lal PathLabs is just one of the many stocks which have been extremely gifting for the investors. The chart above shows how Dr Lal PathLabs has risen in the last year. It is one of those companies which conducts the Covid-19 test. As Coronavirus cases are increasing in the country, states are focussing on more and more test to happen.

Delhi is one of the most severely hit states in the country. Currently, the national capital is facing its fourth wave of Covid-19 when the country is facing its second wave. This shows badly the state has been impacted by this virus. The only way you can keep the cases under control is by testing more population and isolating them who are positive. A large chunk of these test is done by Dr Lal PathLabs. Around 70% of their revenue comes from North India, and all of these states have increased their number of test. The company also supports the home collection of samples from its clinical labs.

As the business is expanding for the company, investors are happy to infuse their money in this stock. The stock has surged in the last four weeks. And, the cases around the country has increased rapidly in these weeks. A heavy correction is seen on 13th April but that is expected when the stock has increased by more than Rs 1,000 in the last seven trading sessions.

Will the stock grow even further?

The experts are still tight-lipped when they are asked if we have hit the peak of the second wave. This wave started just a few weeks back but its exponential rise has been startling. Maharashtra has imposed a “break the chain” movement which is very similar to the lockdown last year. Many other states like Chhattisgarh, Delhi, Ahmedabad, Baroda, etc have imposed strict guidelines or night curfews. Still, the cases are increasing by huge numbers every day. This is a concerning figure for all.

As the cases will increase, more tests will be performed by Dr PathLabs. Also, if we follow the pattern of last year, pharma stocks like Dr PathLabs might have a long way to go. On the other side, this stock also already saw a massive rally. It might not have another rally under its belt. Here, I invite your thoughts to come in. As a market participant, what do you think about Dr PathLabs? Do you feel that this stock still has the potential to deliver more returns or do you feel it is time for this stock to calm down? Let us know your opinions in the comments section of the marketfeed app.