Buy Hester Biosciences Ltd For Target Rs.2835 - ICICI Direct
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Poultry drives Q2 as exports face logistic challenges
About the stock: Hester is one of India’s leading animal healthcare companies & the second largest poultry vaccine manufacturer in the country. It has a strategic presence in 30+ countries with key markets being India, Nepal and Tanzania.
* It operates through four broad verticals: poultry vaccines, poultry health products, animal vaccines and animal health products
* Revenue segment wise: poultry healthcare:73%, animal healthcare: 19%, others:8%; by geography: domestic:81%, exports:10%, others:9%
Q2FY22 Results: Hester reported strong Q2FY22 results.
* Sales were up 17.3% YoY to | 62.7 crore
* EBITDA in Q2FY22 was at | 17.6 crore, up 11% YoY with margins at 28%
* Consequent adjusted PAT was at | 10.6 crore (up 59% YoY)
What should investors do? Hester’s share price has grown by ~3x over the past five years (from ~| 778 in July 2016 to ~| 2368 levels in July 2021).
* We change our view from HOLD to BUY on account of positive impact of expected improvement in exports
Target Price and Valuation: We value Hester at | 2835 (base business at | 2756 i.e. 40x P/E on FY23E EPS + NPV of | 79 Covaxin DS opportunity)
Key triggers for future price performance:
* Opportunities in animal vaccines such as classical swine fever, lumpy skin disease (only player) and sheep pox (only player) in the domestic space
* The management intends to move away from preventive healthcare to curative healthcare as a long term strategy
* Increased focus on health products & widening of portfolio with differentiated herbal line of products looks promising for growth prospects
* Traction from vaccines manufactured in Tanzania facility, Hester Africa
Alternate Stock Idea: Apart from Hester, in our healthcare coverage we like Indoco.
* Indoco manufactures and markets branded formulations and APIs for the domestic and export markets.
* BUY with target price of | 575
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