Published on 7/10/2020 10:00:07 AM | Source: Sushil Finance Ltd

Buy Vimta Labs Ltd For Target Rs.141 - Sushil Finance

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Established in 1984, Vimta Labs Ltd (VLL) provides analytical, clinical, preclinical services to life sciences industries; quality and safety testing for food and beverage industries; and environment services to a wide spectrum of industries. The company has been supporting many national and overseas companies for over 3 decades.


Substancial Growth Expected On The Back Of New Electronic Testing Business

The company acquired EMTAC Laboratories Pvt Ltd for a consideration of Rs. 6 Crore for electrical/electronic, mechanical, thermal assessments and certifications with primary focus being to adapt to the changing regulatory landscape and on medical devices and changes in regulations related to them. Additionally, secondary opportunity arises from Sectors like IT, Telecom and Auto (specifically in the EV segment) to name a few. Existing services offered by the EMTAC are Physical Security Products: Safety Deposit boxes, Strong Doors, ATM Safe, etc; Electricals Products: Fans table, ceilings, Wall mounted, Pedestal and Electronic Products: Scanners, set top boxes, Mobile phones etc


Substancial Order Book and Expected Growth In Future Volumes Will Result In Improvement Business Performance

VLL has always been working at an average capacity utilization of ~50-60% with lower order book. However, The order book of the company has more than doubled mainly due to large order inflows in the Pharma analytical services for both large and small molecules. Additionally, the management expects to reach its prior growth trajectory of 15-20% by the end of FY21 which is delayed due to the adverse impact that COVID-19 has had on the Indian Economy.


Outlook and Valuaiton

We have factored the impact in sales for FY21E due to the Covid-19 pandemic. Thereafter we are optimistic of a slow recovery and normalization of business in H2FY21E and FY22E. We expect the FY22E EPS to be Rs. 9.39 and the PAT margin to be 9.3%. We have assigned a P/E multiple of 15X and arrive at a Target Price of Rs. 141 which gives an upside of ~28% from Reco Price of Rs. 110. Hence, we re-instate coverage on Vimta Labs Ltd with a BUY rating over an investment horizon of 16-24 months.


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