Buy Vimta Labs Ltd For Target Rs.727 - Sushil Finance
Food and pharma division to drive growth :
Several branded drugs are set to lose their patent protection soon, which should aid the generic drugs market, leading to higher revenue-generating opportunities in the Vimta Labs (VLL) pharma space. The company has entered the full spectrum in clinical trial space with a 180-bed capacity in the laboratory, thereby expanding the services to existing clientele. In the food segment, imports and exports of food products drive the testing business. As a result, it has entered into a public-private partnership with the Food Safety and Standards Authority of India (FSSAI) to set up and operate the National Food Laboratory at JNPT Navi Mumbai in FY22 with an initial investment of Rs.10 cr.
Expansion into Electrical Testing :
The company acquired EMTAC Laboratories Pvt Ltd for a consideration of Rs. 6 cr for electrical/electronic, mechanical, and thermal assessments and certifications. Its primary focus is to adapt to the changing regulatory landscape on medical devices and changes in regulations related to them. Additionally, a 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 tables, ceilings, Wall mounted, Pedestal and Electronic Products: Scanners, set-top boxes, Mobile phones etc. VLL sees the potential of business to grow Rs.100 cr by FY26.
OUTLOOK & VALUATION
We expect the FY26E EPS to be Rs. 35.5 and the PAT margin to be 16.6%. We have assigned a P/E multiple of 21X and arrive at a Target Price of Rs. 727 which gives an upside of ~24% from today’s price of Rs. 581. Hence, we re-instate coverage on Vimta Labs Ltd with a BUY rating over an investment horizon of 18-24 months.
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