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Highlights from the Quarter (Q4FY24):

Smruthi Organics Ltd (SOL) reported a comparatively stronger quarterly revenue of Rs. 39.71 cr for Q4FY24, up 7.8% YoY and 69.1% on a QoQ basis. The quantitative performance of the company reported all-round improvement as compared to the previous quarter. This is primarily attributed to the process of backward integration steadily gaining traction, thereby enhancing margins. The company reported a much improved net profit of Rs. 1.52 cr for the quarter, turning positive from the previous quarter, and up 120% YoY.

However, on a full year basis, Smruthi Organics Ltd posted slightly weaker results, falling at revenue levels. As raw material price pressure slowly eased through the year, EDITDA margins drastically improved to 9.4% from 7% in FY23. Additionally, the ongoing backward integration as well as the implementation of various cost saving measures has also contributed to improved margins at the end of the financial year.

Smruthi Organics Ltd has filed Drug Master Files in several PIC/S (Pharmaceutical Inspection Co-operation Scheme) signatory countries in order to gain market access in those countries and export their products. The company is focused more on regulated markets such as EU, Brazil, South Korea, and Europe. During the year, SOL obtained approval from the Korean FDA for the marketing of their Telmisaratan (used to treat high blood pressure) product in the Korean market, which the management believes to be a significant milestone. The company strives to gain further access in various other PIC/S signatory countries, which will help them multiply their revenue in the coming years.

With respect to the FDF division, SOL launched 2 new brands namely Enerlin (multi-vitamins) and Solsita (anti-diabetes) in FY23. In FY24, the company has worked towards the launch of various new brands, and intends to introduce new innovative brands going forward across geographies.

OUTLOOK AND VALUATION

Smruthi Organics Ltd posted a relatively stronger quarter in terms of revenue numbers as well as margins. As backward integration and FDF expansion continues to be a major focus for the company, as well as the continual focus to increase presence in the PIC/S signatory countries sustains, we can expect revenues as well as margins to improve in the coming quarters. We expect FY26E revenue at Rs.175.7 cr, EBITDA of Rs.22.5 cr at an EBITDA margin of 12.8% and PAT of Rs.10.1 cr. We estimate FY26E EPS at Rs.8.9, and assign a PE multiple of 24x, maintaining the target price of Rs.213. We keep our BUY Rating for Smruthi Organics Ltd over an investment horizon of 18-24 months.

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