Emerging Player in Pharmaceutical Manufacturing: Going for R&D and Expansion

Current market Price-: Rs 167

Date of publishing report– : 10 Oct 2021

Sakar healthcare is just 15 years, extremely small company with market cap of 286 crores engaged in manufacturing of various Pharmaceutical products. The company also operates as a contract development and manufacturing organization (CDMO) for various leading pharmaceutical companies.

Sakar is one the fastest growing pharmaceutical companies in India, engaged in manufacturing and marketing of premium medicines with a product portfolio of 155 formulations in more than 23 therapeutic areas.

Established in the year 2004, Sakar is engaged in manufacturing of Pharmaceutical products providing Liquid Orals, Cephalosporin Tablet, Capsule, Dry Powder Syrup, Dry Powder Injections, Liquid Injectables (SVP) in Ampoules and Vials & Lyophilized Injections.

Sakar is managed by a team of professionals with an endeavour to offer Quality Pharmaceutical & Health Care Products in various countries.

The Liquid & Lyophilised Injection unit (small volume parenterals in ampoules and vials) at Sakar Healthcare has been EU GMP approved and all four state of the art manufacturing units are certified by ISO 9001:2015 BVQI , WHO-GMP, cGMP, in addition to the approvals by ‘National Drug Authority’ of Uganda, Kenya, Yemen, Ethiopia, Congo, Ghana, Zimbabwe(MCAZ), Cambodia, Vietnam, Malawi, Namibia, Nigeria, Cote d’ivoire, Philippines, Peru.

Company also caters to countries like Srilanka, Philippines, Vietnam, Cambodia, Sudan, Myanmar, Mauritius, and Costa Rica, Panama, El-salvador, Paraguay, etc. 

In Latin America. Sakar Healthcare boasts some of the most modern and state-of-the-art facilities for manufacturing of various products under its head. Being approved by the WHO of more than multiple countries, these facilities not only create a vote of confidence in the products of the firm, but also improve considerably the quality that is being offered to the clients, all across the globe.

Business Products

Sine company’s products are more technical here’s some basic understanding of its business products. 

What are Oral liquids?

Oral liquids are homogeneous liquid preparations, usually consisting of a solution, an emulsion, or a suspension, of one or more active ingredients in a suitable liquid base. They are prepared for oral administration either as such or after dilution. They may contain other substances such as suitable dispersing, solubilizing, wetting, emulsifying, stabilizing, suspending, and thickening agents and antimicrobial substances for preservation. They may also contain suitable sweetening agents, flavoring agents, and permitted coloring agent.

 Classes of oral liquid dosage forms include:

• Syrup: a viscous oral liquid that contains one or more active ingredients in solution. The base generally contains large amounts of sucrose, other sugars, or sweetening agents. Syrups may contain ethanol (95%) as a preservative or as a solvent for flavors. Antimicrobial agents may also be added to syrups to maintain the microbial quality of preparation.
• Oral Suspension: an oral liquid that contains one or more active ingredients suspended in a suitable base.
• Oral Solution: an oral liquid that contains one or more active ingredients dissolved in a suitable base.

And many more.

What is Cephalosporin?

Cephalosporins are indicated for the prophylaxis and treatment of infections caused by bacteria susceptible to this particular form of antibiotic.

Healthcare providers use cephalosporins to treat a variety of bacterial infections, especially for people who are allergic to penicillin, another common antibiotic. Some examples of infections that cephalosporins can treat include: skin or soft tissue infections. urinary tract infections (UTIs)

Cephalosporins may be used to treat infections caused by susceptible bacteria, such as: Bone infections Ear infections (eg, otitis media) Skin infections Upper respiratory tract infections Urinary tract infections. Cephalosporins are not usually used as a first-choice antibiotic. They tend to be reserved for use when other antibiotics (often penicillins) cannot be used.

What is lyophilization?

Lyophilization and freeze drying are synonymous. Lyophilization is a water removal process typically used to preserve perishable materials, to extend shelf life or make the material more convenient for transport. Lyophilization works by freezing the material, then reducing the pressure and adding heat to allow the frozen water in the material to sublimate. This process boosts the shelf life of the material and also makes them easier to transport by Injection Manufacturers in India.

Lyophilized Injections are the best alternative to oral solid dosage forms. There have been many case studies where bed ridden patients have immensely benefitted from this type of injection. Lyophilized injections are also prescribed to attain maximum bioavailability and stability in patients suffering from a number of diseases.

• Oral liquid syrup & suspension
• Liquid Injsectable (Svp) – Vials & Ampoules EU GMP Approved -: Possessing more than IS products in this category, Dry Powder Injectables is an integral part of the company’s business. With all these 18 plus products being approved under the WHO/CMP scheme, we can be very certain about the kind of quality that the company boasts.
• Cephalosporin – Dry powder injections
• Cephalosporin – Oral solid-: Possessing more than 30 products in this category, Liquid Injectables is an integral part of the company’s business. All these 30 plus products being approved under the WHO/GMP scheme. The quantity of each of these products, under the category of Liquid Injectables, varies between 2 ml and 30 ml, hence, providing the customer an assortment of options to various options to choose from.
• Lyophilised injections (in vials) EU GMP Approved

The product portfolio remains diversified with approximately 300 product registrations, catering to various therapeutic segments such as antibiotics, anti-cold drugs, anti-malarial, multi-vitamins adrenergic, amino acids, etc .

Company also has diversified geographical presence, with sales to various states in the domestic market and exports primarily to semi-regulated markets of various African countries and the Philippines. The company is increasing its focus on export markets, owing to the intense competition in the domestic generic formulations industry. Export sales increased by 60% YoY to ~Rs. 57.00 crore in FY2020 from ~Rs. 36.00 crore in FY2019. Further, to start exports to the European countries, the company has obtained European Union good manufacturing practice (EU-GMP) certification for its existing liquid and lyophilised injectables units, in accordance with the European Medicines Agency (EMA) standards. 

EXPORTS

Sakar exports into International markets with own brands registered and commercialised across global markets. The coverage includes countries of South East Asia, Asia, Africa-Anglo & Francophone, MENA, America, covering around 38 countries with more than 250 brand registered. The product marketing spread gets the necessary momentum through strong logistic processes and able promotion and distribution partners. Surging ahead Sakar focuses in building strong alliances, robust distribution network and supply quality products

Oncology Drugs and Api

The company is setting up a plant for manufacturing oncology drugs and APIs, for which the capex is ongoing. The company now plans to set up a liquid and lyophilized injectables unit for the oncology segment on top of the previously planned oral solid dosages (OSD)/formulations and API units. The commercial operations for the formulations and the API units are expected to commence from Q2FY2022, while the liquid and lyophilized unit is expected to begin its commercial operations from Q2FY2023. This is expected to further strengthen the company’s product portfolio and lead to improvement in scale and profitability. 

Company is going for a mix of debt and equity to fund this capital expansion of its oncology unit. Total cost of the project is expected to be around Rs 146 crores while it is expected to have bank loan of Rs 90 crores for the same. However the repayments will commence from FY 2022- FY 2023 but given the operating margins of the company and compounded sales as well as profit growth of the company over 3 and 5 year period it should not be a big concern. In short term for the next 1-2 years there could be some additional debt on the balance sheet which if concerns you, then you can visit this company back after 2-3 years.

Recent Investments in Sakar Healthcare, Significant increase in FII Holdings.

Recently Swiss based HBM Healthcare Investments, a leading global healthcare private equity has invested Rs 14.85 crore in Sakar Healthcare through its wing COBRA. Cobra India (Mauritius) Limited has acquired 15 lakh shares representing 8.76% of the stake in the company at the price of 99Rs approx per share.

Funding from HBM will help Sakar expand and scale its Oncology manufacturing operations. The company has recently set up a research-driven backwardly integrated Oncology manufacturing unit

HBM Healthcare Investments actively invests in the human medicine, biotechnology, medical technology and diagnostics sectors and related areas. The company holds and manages an international portfolio of promising companies.

Portfolio of HBM Healthcare Investments can be found as under.

Client Base

Research and Development

Sakar has a robust infrastructure for carrying out research and development covering multiple therapeutic categories including analgesic, antipyretic, antibiotics, vitamins, caugh expectorants. A team of well trained scientists is working under able leadership of Dr.Guruprasad Vader, who has over 32 years of comprehensive industry experience in field of Research & Development. The team performance with encouraging outcomes has been recognised by Department of Scientific & Industrial Research (DSIR)under Ministry of Science & Technology, India. With proven expertise and recognition, Sakar further looks forward to opportunities pursuing researches with oncology products.

Comprehensive up-to-date Oncology R & D, ADL and F & D laboratories to partner services which include:

Chemical synthesis services for API intermediates and speciality chemicals in the most modern Research Development and manufacturing centre, which is equipped with batch type with 22 fume hoods and AI integrated flow chemistry based operation system with modern analytical back up facilities.

The initial phase Contract Development Services can be offered in containment facilities designed for HPAPI, comprising of laboratory scale process development, non-infringing studies, impurities identification, isolation and characterisation, analytical method devolvement, accelerated stability studies and process validation with complete documentation (PDR) as per QBD concept for Lab development products.

The next phase to Scale up Studies can be supported with detailed impurity profiling, stability studies, risk analysis studies and production from gram scale to kilo scale with all cGMP documentation in HPAPI containment area. Validation batches can be offered for both formulation devolvement as well as clinical trials. Area – API Plant gm scale & pilot area.

The Standalone unit is to offer comprehensive Process development, analytical development, stability studies for finished dosages in contained formulation development lab. Formulation development studies as per the QBD Concept with complete documentation and PDR for any New Drug Delivery System for Solid dosage, liquid injection and lyophilised molecules (OSD & Injections area).

The Pilot Plant validation batches can be further taken up for Technology Transfer in contained cGMP facility. Sakar can subsequently offer the Commercial Production for finished formulations of solid, liquid injection & lyophilised injection in contained lines to help you achieve your objectives

Financials

For Q1FY22

• Net Sales at Rs 30.26 crore in June 2021 up 50% from Rs. 20.15 crore in June 2020.
• Quarterly Net Profit at Rs. 3.65 crore in June 2021 up 41% from Rs. 2.59 crore in June 2020.
• EBITDA stands at Rs. 6.49 crore in June 2021 up 38% from Rs. 4.69 crore in June 2020.
• Sakar Healthcar EPS has Increased to Rs. 2.13 in June 2021 from Rs. 1.73 in June 2020.

Fo the year ended March 21

• Sakar’s exports have grown by over 2.3 times in the last three years and is expected to continue to grow at a fast clip as the driven by company’s push into regulated markets.
• Prudent working capital management and the equity raised over the past three-four fiscals have supported the liquidity position 
• Sakar has delivered a very robust financial performance in the last three years. Its total sales grew by nearly 80% from Rs 53 cr in FY 2018 to Rs 95 cr in FY 2021.
• EBITDA also shot up by roughly 82% from Rs 13 cr in FY18 to Rs 24 cr in FY 21. EBITDA margins remained stable in a range of 25% to 26%.
• Net profit nearly tripled from Rs 3.81 cr in FY 2018 to Rs 10.7 cr in FY 2021. 
• Exports contributed 73.1% of the company’s net sales and grew approximately by 148% from FY2018 to FY2021. 
• In term of quantity and value Africa contributes the highest followed by South East Asian and Latin American markets.
• With EU-GMP approval for Liquid and Lyophilized injection unit, exports to European markets has been initiated, new product registrations will contribute to the top line and bottom line EBITDA (Crs) EBITDA Margin% Net Profit(Crs) Exports (Crs) significantly in future years

For Q4FY21

• Net Sales at Rs 21.68 crore in March 2021 up 18.74% from Rs. 18.26 crore in March 2020.
• Quarterly Net Profit at Rs. 1.74 crore in March 2021 down 39.06% from Rs. 2.86 crore in March 2020.
• EBITDA stands at Rs. 7.49 crore in March 2021 up 32.8% from Rs. 5.64 crore in March 2020.
• Sakar Healthcar EPS has decreased to Rs. 1.17 in March 2021 from Rs. 1.88 in March 2020.

Sectorial Outlook

The Indian Pharmaceutical Industry is 3rd Largest in volume and 13th Largest in terms of value in the world and is expected to grow at a CAGR of 11.34%, according to a recent report by the Indian Brand Equity Foundation (IBEF) by 2020. Branded Generics are expected to continue their dominance in the Indian Market, considering the various therapeutic categories they cover and the increase in population.

Conclusion

Sakar healthcare, a niche pharmaceutical company with market cap of just of 286 crores has been showning strong headwinds in the pharmaceutical sector. Company has a very stable operating profit margin of in range of 24-25%. One of the very intriguing thing  we found about Sakar Healthcare was that as of March 2021 company had fixed assests of 69 crs (Gross Block) while the capital work in progress for the company was around 13+49 crores in FY 21 and FY 22 respectively which is almost equivalent to the assets held by the company as well as more than 50% of the total sales of the company. 

Additionally the management is also quite confident that the business will grow exponentially in the next few years primarily driven by right mix of existing diverse product range (therapeutic category) along with addition of anti-cancer (oncology) portfolio. The technology enhanced manufacturing units, industry exposure, experienced personnel, research oriented products all are aligning the progress towards designed organisation vision of achieving sustainable growth which could continue for the foreseeable future.

It may however be possible that due to less free float and liquidity in the market the stock price of the company may not see any movement or if the stock is down significantly it can stay there for more than longer, therefore users are advised to explore this company with a very very long time frame . It is because a lot of times things may not go as planned , there may be some uncertain events and despite managements best efforts it may take time to get resolved. Point being Extreme patience is required for this type of companies which despite growing can take long time to deliver any meaningful returns. People involved in business may know very well how difficult it is to expand and grow despite significant efforts. After all we must always keep in mind “Rome wasn’t built in a day”.

Note-: The only concern we have with this company is that days payables have increased significantly from 46 days to 141 days. We are not able to identify the root cause for the same therefore waiting for the end of current fiscal to get more updates.

COMPLETE FINANCIALS.

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