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EXPANSION IN ETHIOPIA LIKELY TO DRIVE TOPLINE GROWTH.

The company has expanded in Addis Ababa, Ethiopia for manufacturing of Cephalosporin Injectables with a manufacturing capacity of 26.4 mn vials per annum with an outlay of ~Rs. 90-95 crore. The expansion is expected to increase the company’ssales by Rs. 100 crore with EBITDA margins of 14-15%.

INDIA BEING A NEW GLOBAL CENTER FOR PHARMA COMPANIES DUE TO THE EFFECT OF CHINA +1 STRATEGY OF VARIOUS MNCS.

According to industry reports in the 2020-2030 period, Indian pharma industry is expected to grow at a compounded annual growth rate (CAGR) of ~12% to reach at US$130 bn by 2030 from US$ 41.7 bn in 2020. Though the pharmaceutical industry has grown at a CAGR of approx. 13% over the two decades, in the last decade, the CAGR has been ~ 8.5% and it has currently been ~6.2% over the past five years. India has attracted higher investments in R&D over the last couple of years, hence, total investment in Pharma sector increased from US$ 100 mn in 2010 to US$ 2.4 bn in FY20.

STRONG FUNDAMENTALS TO STEER THE COMPANY ON A GROWTH PATH.

With the strong operating history of more than 43 years and the company is on the path to create a robust presence in Ethiopia. From FY15 to FY21, the turnover grew at a CAGR of ~24%, albeit on a small base, from Rs. 18.94 cr to Rs. 68.40 cr; the company is virtually a debt-free company and holds net cash of Rs. 12 cr. Further, the company’s cash accruals are expected to remain healthy over the next two fiscals with stable cash flows.

OUTLOOK & VALUATION

We expect the company to deliver top line growth of 30% for the year FY24E. Additionally, we expect the company to deliver strong EBITDA and PAT margins of ~13.3% and ~8.9% respectively in FY24E. Our estimates for EPS for the year FY22E, FY23E & FY24E are projected to be Rs. 3.2, Rs. 5.8 & Rs. 10.2 respectively. We have assigned a P/E multiple of ~25X and arrived at a target price of Rs.254 that provides an upside of ~41% from the current market price of Rs. 180 within an investment horizon of 18 to 24 months. Hence, we reinstate coverage on Kilitch Drugs (India) Ltd with a ‘BUY’ rating.

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