While Syncom Healthcare has big plans to expand, it is a high risk bet considering its short track record and inexperience in overseas markets.
Indore-based Syncom Healthcare is planning to raise about Rs 50 crore from the IPO to set up a greenfield plant, modernise its existing facility and meet working capital requirements. The company which makes formulations is planning to set up a new plant at the Indore SEZ at a cost of Rs 20.48 crore and upgrade its existing facility in Dehradun which will entail an investment of Rs 6.62 crore. About Rs 15 crore will be used to fund working capital requirements.
Domestic market
Syncom, which started off as a marketing and distribution company for pharmaceutical formulations eight years ago, got into production of formulations in 2006. The company’s Dehradun plant has approvals for current good manufacturing practices of the World Health Organisation which enables it to market the drug in less regulated and developing geographies in addition to the domestic market. In the domestic market the company has a product portfolio of about 200 drugs in the over-the-counter, herbal, generic and ethical categories. In addition to selling its own medicines the company also acts as a contract manufacturer for larger Indian pharma companies.
| MILES TO GO | |||
| in Rs crore | FY10E* | FY11E | FY12E |
| Net sales | 62.9 | 72.4 | 120.0 |
| Operating profit | 10.0 | 11.6 | 19.8 |
| OPM (%) | 15.9 | 16.0 | 16.5 |
| Net profit | 4.8 | 5.8 | 10.8 |
| P/E (x) | 27.4 | 23.9 | 11.9 |
| * Annualised E: Estimates | |||
Eyeing regulated markets
The company wants to set up an unit at the SEZ, get the clearances from European and US federal authorities and market off-patent drugs in those geographies. In addition to a range of tablets and capsules in the general category, the company is planning to make cephalosporins (antibiotics) from the SEZ facility. The company intends to focus on the international markets which not only fetch better margins and have lesser competition but are also growing at a faster pace. While the domestic pharma space is growing at a rate of 12 per cent, exports are growing at 22 per cent. In addition to exports the company wants to become the outsourcing partner for multinational companies.
Financials
Considering the small base, the company’s financial performance is nothing to write home about with sales expected to touch Rs 63 crore in 2009-10 from Rs 51 crore in 2007-08, a growth of 23 per cent over two years. Net profits during the same period are expected to grow by 36.6 per cent to Rs 5 crore in the current fiscal.
While the past performance has been average, going ahead, it is estimated that the Indore plant will contribute about Rs 50 crore to the top line from 2011-12 doubling its turnover and profits from the current levels.
Valuations at the current level are steep as the company is asking for 27 times and 24 times its 2009-10 and 2010-11 estimated earnings, respectively. Its peer, Kilitch Drugs, trades at about 15 times its trailing 12 months earnings of Rs 9. Only when 2011-12 numbers are taken into consideration is P/E at a more reasonable 12 times. Revenue visibility two years down the line for a company with a small base, little exposure to international markets and limited experience and fledgling brands is too much of a risky proposition for the retail investor.
