Buy Windlas Biotech Ltd For Target Rs.289.4 - Choice Broking
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A pure play formulation CDMO company, at an attractive valuations
With a revenue market share of 1.5%, Windlas Biotech Ltd. (WBL) is among the top-five contract development & manufacturing organization (CDMO) in the domestic pharma sector. It serves seven out of top-10 pharma formulation companies in India. The company focuses on therapeutic areas like cardiovascular, anti-diabetics, neurology, gastrointestinal, vitamins, minerals, nutrients etc. WBL operated in three verticals, namely, the CDMO services & products, the Domestic trade generics & OTC brands and the Exports segment. In FY22, these verticals generated 82.3%, 13.2% and 4.5%, respectively, to the total business from the sales of products.
Investment rationale:
• Structural tailwind for the CDMO companies
• Consistent focus on high-margin chronic therapeutic areasto aids business sustainability
• CDMO vertical business to fall back in the growth trajectory
• Other business verticals offers huge growth potential with superior profitability
• Synergy across the business verticals
• Anticipating an operating margin expansion by 2ppts over FY22-24E
Risk and concerns:
• Unfavorable government policies and regulations
• Continued subdued capacity utilization
• Difficulty in adding new customers and brands
• Lower than expected growth across the verticals
• Competition
Valuation:
WBL came out with an IPO (in Aug. 2021) and demanded a P/E valuation of 26.6x (to its restated FY21 EPS of Rs. 17.3). The issue was fully priced and since its listing, the share price is in a downward trend.
At CMP of Rs. 222.4, WBL’s share is trading at a TTM P/E multiple of 12x (to its TTM EPS of Rs. 17.5), which seems to be attractive considering the growth outlook and return profile. Thus, we assign a “BUY” rating on the stock with a target price of Rs. 289.4 per share.
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