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For years we have fed on the bulk drug manufacturing story with deep research capabilities serving as a back-end to international giants. Twilight Litaka Pharma comes as a small twist; it is engaged in the manufacture of formulations serving the needs of national and global labels.
Prima facie the numbers look compelling. In 2006-7, the company reported a top line of around Rs 202 crore, EBITDA of Rs 26.72 crore and a post-tax profit of Rs 14.09 crore. Then in the first nine months of 2007-8, the company outperformed its previous year’s numbers: a top line of Rs 214.7 crore, EBITDA of Rs 28.20 crore and net profit of Rs 15.61 crore. All this on an equity of Rs 10.64 crore.
Just how did it manage that?
First the contextual environment.
Until November 2006, India’s pharma industry grew by around 7% annually. Then something happened; the trend line rose in response to a number of factors—increased income, greater medical awareness and deeper insurance inroads. For overall 2006-7, growth was around 14% (the sector did a lot of catching up after the tipping point in November 2006) and in 2007-8 around 15%. Twilight Litaka is one of the little boats that have bobbed up following the rising of the industry waters due to the following:
• 50% of its income was derived from contract research and manufacture, reflected in enduring relationships with large MNCs and Indian companies. As the industry expanded, Twilight Litaka’s business grew
• The company acquired 17 brands from Sami Labs, so as the industry grew, payback accelerated
• The company capitalised on economies of presence (nationwide), products (complementary) and plants (four in all) with catalytic effect The result is that Twilight Litaka’s top line grew nearly 50% year-on-year in the past few years. Here’s why this growth will sustain.
• Twilight Litaka has a portfolio of 200 dosage forms (80 brands)
• Its therapeutic footprint extends across relevant and growing segments.
• Its 1,200-strong field strength is expected to double in two years; number of dosage forms sold could rise from 45 to 75
• Its factories are aligned with WHO standards and produce a number of registered products
What cues are stockpickers likely to pick up in the coming months? A proposed placement of equity to liquidate long-term debt. Expansion into more states and a wider portfolio to sustain top line growth. Selective therapeutic presence to strengthen the bottom line. Result: top line growth to Rs 375 crore in 2008-9 and Rs 475 crore in 2009-10 with no major margins compromise. Which is fair for a company with a market capitalisation of only Rs 120 crore.
Consider another contextual reality. India presently accounts for a little more than 1% of the global prescriptions market of $650 billion compared with 16% of the world’s population. As this number corrects...
Patherya heads Trisys, an annual reports consultancy. His column identifies stocks that are not in the limelight. He can be reached at mudar@trisyscom.com
Disclosure: The writer holds stocks in Twilight Litaka Pharma
