This smallcap pharma stock zoomed 85% within 6 weeks on strong earnings

Shares of Vimta Lab hit a new high of Rs 1,070.55, gaining 8 per cent on the BSE in Wednesday's intra-day trade, surging 15 per cent in two days in an otherwise weak market

Shares of Vimta Lab hit a new high of Rs 1,070.55, after gaining 8 per cent on the BSE in Wednesday’s intra-day trade, and surging 15 per cent in two days in an otherwise weak market. In comparison, the BSE Sensex was down 0.26 per cent at 80,470 at 10:48 AM.

 

Since November 8, within six weeks, Vimta Lab's share price has zoomed 85 per cent after the company more than doubled its profit after tax (PAT) in the September 2024 quarter (Q2FY25) to Rs 17.0 crore. It had posted a PAT of Rs 8.1 crore in the year-ago quarter.

 

The company’s revenue grew 26.4 per cent year-on-year (Y-o-Y) to Rs 85.4 crore. Earnings before interest, tax, depreciation and amortisation (Ebitda) rose by 57.3 per cent Y-o-Y to Rs 30.6 crore; while margins improved 704 bps to 35.8 per cent. The strong performance was primarily driven by the company’s pharmaceutical services, which continue to lead the business.

 

Vimta Labs has divested the diagnostic and pathological services business to Thyrocare Technologies. This decision allows the company to sharpen its focus on core services and optimise resources for sustained growth, resulting in a significant improvement in Ebitda margins, the management said. Looking ahead, the management expects pharmaceutical services to continue to show promising growth, and anticipates that food testing services will also contribute to growth in the coming quarters. The company said its new life sciences facility will be commercialised from the third quarter.

 

The business operations of Vimta Lab are expected to continue to benefit from its established presence in the industry, sustained healthy profitability margins and a conservative capital structure, according to analysts.

 

Vimta Labs is engaged in testing of various products, materials and different types of techno-scientific tests are carried out depending on the nature of material as per required specifications and standards. Testing is performed using different instruments.

 

The company is positive about its growth prospects in the biopharmaceutical, food, environmental, and electronics & electrical contract testing and research markets, all of which have a strong positive outlook despite the current global economic uncertainties, large competition, and stricter regulatory compliance requirements. 

 

The company has a strong customer base, and a promising pipeline that give it good visibility of growth over the medium-term. Over the long-term, the company expects it would strategically look at acquisition opportunities or alliances or partnerships to enhance its market reach, capabilities and service portfolio, to gain further market share.

 

Further, penetration into overseas markets would be an important lever of growth going forward, while the domestic market continues to hold immense potential led by economic growth in the country. However, inflationary pressures in terms of cost of manpower, technology and material, and pricing pressures due to a proliferation of laboratories in the country will be the key risks to watch out for, Vimta Labs said in its FY24 annual report.

 

The company is at the advanced stage for starting its new facility spread over approximately 200,000 sq. ft in Genome Valley, Hyderabad. This expansion will help provide additional infrastructure to scale up capacities for the company’s key growth driving services catering to biopharmaceutical, food and electronics industries, which will further facilitate the company to increase its TOI and its profitability going forward.  Food testing services in the new facility will start post accreditation from the National Accreditation Board for Testing and Calibration Laboratories (NABL), CARE Ratings had said in its rationale.