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Nectar Life Sciences – Multibagger Stock For the Month of August 2018

Price – Rs. 24.20

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About the Company

Nectar Life Sciences (“Nectar Life” or the “Company) is an integrated pharmaceutical organization incorporated in 1995 based in Chandigarh, Punjab India. The Company manufacture high quality Cephalosporin* intermediates, – APIs and Formulations to meet the diverse requirements of its customer base in India and over 84 countries worldwide. Nectar Life’s API & Finished Dosage Forms Business contributes to more than 85% of the total revenue.

* Cephalosporins are a large group of antibiotics that belong to a class known as beta-lactams. These drugs are used to treat bacterial infections including: Ear infections, Pneumonia, Skin infections, Kidney infections, Sexually transmitted infections such as gonorrhea and Bone infections. Cephalosporins are bactericidal drugs, meaning they kill bacteria directly.

INVESTMENT RATIONALE

Diversified Business Divisions

[1] Pharmaceuticals –APIs – With leading global capacity for some of the Cephalosporin Molecules, the Company is one of the leading manufacturers of Cephalosporin range of products possessing core strength in manufacturing (Both oral and Sterile API’s).

Currently Nectar Life ‘s API business explores one of the most stringent markets of the world like EU, Mexico, LATAM, SEA, CIS etc besides overall exports to over 70 countries of the world.

[2] Pharmaceuticals – Finished Dosage formulations – Nectar Life offers contract manufacturing capabilities for Solid Dosage forms like Tablets, Capsules, Dry powder Oral suspension and Granules & Injectable for Cephalosporins which are packed, stored, batch released and distributed to export destinations worldwide.

Currently Nectar Lifesciences sells its formulations in High End RoW markets like South East Asia, LATAM, CIS & Africa. NLL Plans to commercialize in European market by Mid 2019.

[3] Pharmaceuticals Menthol – Nectar Life entered the Menthol Business in 2006. The Company manufacture the the following products:

  • Menthol Crystals
  • Menthol Flakes
  • Peppermint oil
  • Cis 3 Hexenol
  • Mentha Piperita
  • Indian Spearmint Oil
  • Menthones
  • Mint Blends
  • Dementholised
  • Peppermint oil
  • Any other customized mint based product

[4] Other Non-API Pharmaceuticals businesses

The Company has high quality facilities for its other Non-API businesses like Empty Hard Gelatin Capsules (EHGC), Generics & Diagnostics.

  • EHGC – Being the one of the largest manufacturers, the EHGC facility in Baddi has a capacity to produce approximately 6 billion empty capsules & print 1 million capsules per annum. With in few years of inception the Company is amongst top 5 EHGC manufacturers in India catering to both domestic & export markets. Nectar has recently launched two new innovative products in EHGC – menthol capsules (Nexxicap MintyTM) and pearl capsule (Nexxicap PearlTM).
  • Generics India Business – The Company has more than 300 Stock Keeping Units (SKUs) in India with Pan India presence & about 1 Lac retailers are covered.
  • Diagnostics– The business unit is known as Necpath, manufacturing various Diagnostics like: –
    • Rapid tests
    • Pregnancy cards
    • HIV/ Malaria/Bio reagents
    • In-Vitro Diagnostic equipments etc.

Strong Financial Position

Particulars

FY14

FY15

FY16

FY17

FY18

Revenue (In Rs. Cr.)

1,638.31

1,643.64

1,675.69

1,643.70

1,875.80

Growth

0.33%

1.95%

-1.91%

14.12%

EBITDA (In Rs. Cr.)

288.78

266.90

238.75

224.42

235.70

EBITDA Margin

17.63%

16.24%

14.25%

13.65%

12.57%

PAT (In Rs. Cr.)

62.09

66.26

54.24

55.34

52.27

PAT Margin

3.79%

4.03%

3.24%

3.37%

2.79%

EPS (In Rs.)

2.77

2.95

2.42

2.47

2.33

Historic P/E (Closing Price of 31st March)

8.74

12.49

15.71

14.26

11.35

CURRENT P/E (based on price of 8th August – Rs. 24.20)

10.38

Net Worth (In Rs. Cr.)

927.06

957.95

954.08

1,006.68

1,058.66

Debt (Long + Short) (In Rs. Cr.)

803.18

860.83

872.64

794.14

854.16

Cash (In Rs. Cr.)

9.98

33.38

36.65

13.18

9.31

Ratios

D/E

0.87

0.90

0.91

0.79

0.81

Interest Coverage

2.09

2.13

1.94

1.91

2.05

ROCE

16.69%

14.67%

13.07%

12.46%

12.32%

ROE

6.70%

6.92%

5.69%

5.50%

4.94%

First Quarter Performance – FY 2019

Financials

Q1 FY18

Q1 FY19

% Change

Total Income

Rs.  342.83 Cr.

Rs. 534.04 Cr.

Up 55.77%

Net Profit

Rs. 10.39 Cr.

Rs. 13.20 Cr.

Up 27.05%

EPS

Rs.  0.46

Rs. 0.59

Up 28.26%

Regulatory Filings

Nectar Life has filed 44 Drug Master Files (DMFs) till date in highly regulated markets like US, EU, Japan, Korea, Canada and South Africa for its Cephalosporin APIs, intermediates, capsules shells and menthol.

The Company has also filed a number of Formulations dossiers to some of the high-end markets and expects quick approvals for the same. Nectar Life intends to file more ANDAs and EU dossiers for its cephalosporin range of products along with many more API DMFs in 2017-19.

Currently the Company has filed 15 ANDA’s in United States.

WHAT’S DRAGGING THE STOCK?

Intense Competition in Pharma Space

Stringent Regulation

Pledged Promoter Holding

21.11% of promoter holding is pledged (promoter holding – 55.80%).

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.