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Parabolic Drugs Limited is one of the fast growing API (Active Pharmaceutical Ingredients)

Buy cmp 69(533211)

Parabolic Drugs - Management meet highlights
  • Targets to become on-stop shop for Anti-biotics, intermediates and finished formulations by 2013
    • The company raised Rs185 crore through IPO to fund its projects in June 2010. It aims to become a one-stop shop for anti-biotics, intermediates API manufacturing, CRAMS and finished dosage formulations by 2013.
    • 50% of revenues comes from oral cephalosporins (API/Bulk drugs). Company ventures into 3rd and 4th generation cephalosporins which are less competitive and have huge demand in the regulated markets ( overall market size of ~$2.5bn).
    • Its product portfolio presently comprises of 44 APIs and 7 API intermediates which are marketed domestically and exported with an increasing customer base, currently 514 across 45 countries. It has filed 20 DMFs in both US and EU and plans to file 16 more.
  • Growth strategy 
    • Has a strong presence in countries like Europe, Latam, South Korea, Iran, Turkey and China. Is foraying into Japanese markets and has applied for various clearances through a Kyudo Pharma ( a trading and distribution company in Japan).
    • The company has received EUGMP certification for its Derabassi Cephalosporin plant in July 2010, providing immediate access to key markets like Germany, Italy, Spain and Netherlands.
    • Would gradually shift towards finished dosage formulations targeting therapeutic areas such as diabetes, CVS, pain management. Has a pipeline of 20 non-antibiotic products under develpoment
    • Company recently entered into CRAMS space through custom synthesis and is setting up a formulation R&D park for the same in Haryana.
    • Has already completed 8 custom synthesis projects for MNCs in H1FY11 and has a tie-up with 2 innovator companies for 3 long term API CRAMS deal.
  • High capex for capacity expansions
    • Parabolic has lined up ~Rs200 crore of capex for the next 3 years inorder add capacities in Cephalosporin, Non-antibiotics and CRAMS, which will put it in a position to cater to Rs8-10bn worth of incremental orders in a full working year, higher than its current run rate.
    • Out of the total capex planned, 70% is for expansion in Cephalosporin and Non-Beta Lactum products facility.
    • New plant in Haryana is likely to get commisioned in FY12 catering to innovator companies. However this would add to the revenues from FY13 onwards as company awaits USFDA inspection next year. The plant ay Chachrauli  (UP) is likely to be commissioned by December 2010 for non-antibiotics.
  • 60-70% of capacities tied up with MNCs
    • Company's 60-70% of upcoming facility has already been tied up for CRAMS agreements with innovator companies in US.
    • Cephalosporins capacities have also been booked by Indian Pharma companies like Ranbaxy, Cipla, Cadila and certain European MNCs.
  • Financials
    • Parabolic has an impressive revenue and PAT CAGR of 51% and 30% respectively over the past 3 years. The company diversified its revenue base with sales to top five customers, in value terms, reduced from 57.6% in FY07 to 42.6% in FY10.
    • H1 FY11 revenue growth was healthy at 17.9% on yoy basis, OPMs improved by 200bps on yoy basis, while PAT witnessed a yoy growth of 88.7%. Out of the total sales, 28% came from regulated markets compared to 6-7% during the same period last year.
  • Concerns
    • Debt equity ratio remains high at 1.5x as on September 2010.
    • High working capital cycle of 200+ days with debtors days at 120.
  • Valuations: As per our quick estimates, the stock is currently trading at a P/E of 7.6x its FY11E and 5.6x FY12E. We believe these valuations are attractive as compared to its peers, given the expected strength in the company’s growth trajectory and improved product mix (as large part of revenues coming from regulated markets from CRAMs and Non-betalactums). Earnings are expected to witness a CAGR of 60% during FY10-12E. Timely USFDA approval for its new plant would open the channels of revenue from the regulated markets.
  • Note: Cephalosporin is an  semi-synthetic penicillin antibiotic with an API market size of $7bn, growing at the rate of 7-8% annually. API is a bulk drug - a powder used in tablets and capsules.