Not Rated Concord Biotech Ltd For Target Rs.1,325 - Motilal Oswal Financial Services Ltd
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Niche fermentation-focused business at work
? We met with the management of Concord Biotech (CONCORD) and visited its Limbasi (API)/Valthera (formulation) plants.
? Over the past two decades, CONCORD has established capabilities across the complex fermentation value chain to manufacture APIs.
? The company has also put in efforts to forward-integrate to manufacture formulations in therapeutic areas of immunosuppressants, oncology and antiinfectives.
? Overall, it has doubled its revenue/EBITDA/PAT over FY19-23 to INR8.5b, (~41% earnings CAGR). It is building enough levers in the API/formulation segments to achieve a 25% revenue CAGR over the next 5-6 years.
Key highlights from management meet
API (85% of 1HFY24 sales)- Strong moat in fermentation-based APIs
? The availability of strain for fermentation and the ability to scale up for commercialization are the key moats of CONCORD in API.
? CONCORD has a total capacity of 1,250m3 . Since FY2000, it has invested INR1b in its Dholka facility to build 450m3 capacity. The company invested INR4b in its Limbasi API plant to build 800m3 capacity, which was commercialized in FY21. The overall asset turn in the API business can be 3x at peak utilization.
? The Limbasi plant has capacity utilization of 35%, and thus has enough scope to ramp up the production over the next 2-3 years.
? It has 41 manufacturing blocks and 387 reactors at its Dholka and Limbasi facilities, which provide flexibility in plant configuration to meet customer demands at a minimal cost of operations.
? Typically, it takes 45-60 days for completing one cycle of commercial level fermentation. The entire process can be split into upstream and downstream. The vial to inoculum to seeding to harvesting is called upstream process. The extraction of API using solvent/water is called downstream process.
? The company keeps sufficient inventory of APIs in the crude form to optimize the shelf life of its APIs.
? It has ~ 20% market share in fermentation-based APIs like mupirocin, sirolimus, tacrolimus, mycophenolate sodium and cyclosporine.
? Demand for immunosuppressant products is expected to be driven by organ transplantation, wherein patients would need to take immunosuppressant for the rest of their life.
? The medicines required during the transplant are Mycophenolate Mofetil/Na, Tacrolimus/Cyclosporine. Mycophenolate Mofetil is acceptable in regulated markets, while Mycophenolate Na is acceptable in emerging markets. Similarly, Tacrolimus is for regulated markets, and Cyclosprine is for emerging markets. CONCORD has covered the medicine spectrum required for transplants.
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