IGI Logo

Multiple headwinds continue to stress; FY24 outlook cautious but upbeat…

About the stock: Hikal is predominantly a B2B player that provides intermediates and active ingredients to global pharmaceutical, animal health, crop protection and specialty chemical companies.

* Pharma & crop protection are 58% & 42% of operating revenue, respectively. Pharma business is currently divided into 50:50 ratio of APIs, CDMO. Animal health business accounts for 20-25% of CDMO business

* In crop protection, 69% revenues are derived from CDMO while remaining is from proprietary products, specialty chemicals & specialty biocides

* One of the largest suppliers of Gabapentin API (CNS) and in crop protection, one of the largest suppliers of Thiabendazole (TBZ)

 Q1FY23 Results: Muted quarter amid headwinds in pharma and crop protection.

 * Revenues declined 17% YoY to | 379 crore

* EBITDA was at | 23 crore, down 76% YoY with margins at 6%

* Loss of | 9 crore in this quarter vs. profit of | 50 crore in Q1FY22

What should investors do? Hikal’s share price grew by ~2x over past three years

* Downgraded from BUY to HOLD due to the adoption of cautious stance in the backdrop of near to mid-term headwinds as we wait for improvement in macro environment in both demand and supply side to improve before taking a directional call.

Target Price and Valuation: Valued at | 290 i.e. 20x FY24E EPS of | 14.4.

Key triggers for future price performance:

* Capex progress in both pharma and crop protection

* Margin improvement on the back of several cost rationalisation & efficiency improvement measures undertaken during the pandemic

* Continuum in crop protection growth rate * Received manufacturing license for the production of APIs at Panoli site, to resume post validations over the next quarters

* Raw material challenges expected to continue in the next few months

Alternate Stock Idea: Apart from Hikal, in our healthcare coverage we like Laurus.

* Laurus Labs operates in the segment of generic APIs & FDFs (formulations), custom synthesis and biotechnology

* BUY with target price of | 675

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

SEBI Registration number INZ000183631

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer