Hikal Ltd Pharmaceutical company ( A small cap can turn mid cap to large cap in up coming years )

 Hikal Ltd   Date 04/12/2020

(CMP: Rs 171, Market cap: Rs 2,113 crore)                                                  

 Source company  website 

 

Hikal trades at a significant discount to its peers in the CDMO space, which we believe should reduce, given multiple catalysts.

Q2 topline growth has been led by a 34 percent YoY jump in the pharma business which now constitute 75 percent of sales. This was helped by increased volumes of newly-commercialized products and commissioning of additional capacity in Bangalore. However, the crop protection business was impacted as a major long-term contract manufacturing customer deferred shipments worth Rs. 40 crore from Q2 to Q3. 

Capex plan resumed: Hikal's capex program worth Rs 300 crore, which was delayed due to the pandemic, has now resumed and is expected to be commissioned by Q1 FY22. Capex allocation is equally split between pharma and crop protection businesses and the company has obtained all the necessary environmental clearances. Hikal is also exploring new opportunities with customers and alternative raw material supplies in the domestic market under the government's “Atmanirbhar Bharat” initiative.

 “Make in India” theme could disproportionately benefit the company.

Import intensity for Gabapentin

Hikal has delivered projects involving:

Single-step / multi-step synthesis

Hazardous chemicals

Challenging unit operations such as

Oxidation

Bromination

Azidation

Chlorination

Ammoxidation (gas phase)

THF recoveries