Hold Hester Biosciences Ltd For Target Rs.2070 - ICICI Direct
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Animal health drives sales as poultry decline continues; margins decline…
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: 49%, animal healthcare: 51%
Q2FY23 Results: Numbers were weak on the margin front as sales mix changed.
* Sales were up 15% YoY to | 72 crore
* EBITDA was at | 15.8 crore, down 10% YoY with margins at 21.9%. Margins declined amid a change in the sales mix
* Adjusted PAT was at | 10.4 crore (down 2.5% YoY)
What should investors do? Hester’s share price has grown by ~1.2x over the past three years (from ~| 1631 in November 2019 to ~| 2000 levels in November 2022).
* Upgraded from REDUCE to HOLD but maintain neutral stance as we monitor ramp-up in Animal Healthcare, Africa business, opportunities in pet-care to mitigate slump in legacy poultry vaccines segment
Target Price and Valuation: We value Hester at | 2070 (base business at | 2051 i.e. 35x FY24E EPS of | 58.6 + NPV of | 16 for Covaxin DS opportunity).
Key triggers for future price performance:
* Opportunities in animal vaccines such as classical swine fever, lumpy skin disease (only player), sheep pox (only player) in the domestic space and expected launch of the modified Inactivated Coryza Vaccine, along with additional revenue from PPR national tender
* Increased focus on health products & widening of portfolio with differentiated herbal line of products looks promising for growth prospects
* Traction from manufacturing from Tanzania facility, Hester Africa and strengthened distribution network in Africa, along with increase in bulk antigen capacity and fill finish line for animal vaccines
* Foray into pet care with 10 products and new marketing teams in four zones
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 | 525
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