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FRESH ORDERS FROM ETHIOPIA LIKELY TO DRIVE COMPANY’S FUTURE GROWTH.

The company has expanded in Addis Ababa, Ethiopia for manufacturing of Cephalosporin Injectable. KDIL has one of the largest capacities in Ethiopia with a manufacturing capacity of ~26.4 mn vials per annum. The expansion is expected to increase the company’s revenues by ~Rs. 200 crore with EBITDA margins of 18-20%. Further, the company’s subsidiary has received an order in February 2024, in Ethiopia to the tune of USD 9.13 mn which is to be executed within 6 months of order received. The company is likely to witness further new order inflows from the export market.

STRONG FUNDAMENTALS ALONG WITH CAPEX PLANS TO STEER THE COMPANY ON A GROWTH PATH.

The company has a strong operating history of over 4 decades and the company is on the path to create a robust presence in Ethiopia. The company is currently undergoing a capex in Khapoli, Maharashtra to the tune of ~Rs.100-120 crore which is likely to be completed by FY25. From FY19 to FY23, the turnover grew at a CAGR of ~14%, from Rs. 82.5 cr to Rs. 139.5 cr; the company is virtually a debt-free company and holds net cash (including investments) of Rs. 60 cr. Further, the company’s cash accruals are expected to remain healthy over the next two fiscals with stable cash flows back by domestic and international demand.

INDIA BEING A NEW GLOBAL CENTER FOR PHARMA COMPANIES

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 2021. 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. 

OUTLOOK AND VALUATION

We expect the company to deliver top line growth of ~110% for the year FY26E over FY23, backed by pickup in new orders from Ethiopia. Additionally, we expect the company to deliver strong EBITDA and PAT margins of ~17.1% and ~8.3% respectively in FY26E. Our estimates for EPS for the year FY24E, FY25E & FY26E are projected to be Rs. 7.3, Rs. 11.9 & Rs. 15.3 respectively. We have assigned a P/E multiple of 30X and arrived at a target price of Rs.466 that provides an upside of ~21% from the current market price of Rs. 384 with an investment horizon of 24 to 30 months. Hence, we reinstate coverage on Kilitch Drugs (India) Ltd with a ‘BUY’ rating.

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