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Stellar numbers but upside priced in…

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 and crop protection are 62% and 38% of operating revenues. The pharma business is currently divided in 59:41 ratio of APIs and CDMO. Animal health business accounts for 20-25% of CDMO business

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

Q1FY22 Results: Hikal reported robust Q1FY22 results.

* Sales were up 29.5% YoY to | 456.8 crore

* EBITDA in Q1FY22 was at | 95.8 crore, up 82% YoY with margins at 21%

* Consequent adjusted PAT was at | 50.5 crore (up 236% YoY)

What should investors do?

Hikal’s share price has grown by ~4.3x over the past five years (from ~| 123 in July 2016 to ~| 535 levels in July 2021).

* We change our view from BUY to HOLD on account of the sharp run up. The stock is already factoring in most of the positive aspects

Target Price and Valuation: We value Hikal at | 590 i.e. 30x P/E on FY23E EPS.

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 | 785

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