Shilpa Medicare (Shilpa) is successfully building strong franchise in formulations business after achieving decent scale in APIs. Low base of formulations coupled with total of 23 ANDA filings in niche oncology and multiple sclerosis areas clearly present a case of strong growth opportunity. Our recent interaction with the management reinforces our long term positive stance on growth prospects of the company. It has successfully established strong compliance with difference regulatory authorities by clearing the recent inspections.
Further, the company is also exploring opportunities in NDDS through subsidiary companies and in biosimilars through recently acquired Navya Biologicals, where the initial investments have already been made. With an estimated earnings CAGR of 33.8% over FY17-20 coupled with substantial improvement in return ratios despite the continued investment phase, we maintain ‘add’ with revised target price of Rs 634/share from Rs 585 earlier.
The company’s recently launched generic Gleevec in EU and two launches in the US, generic Xeloda and Vidaza, contribute ~6-8% to the total revenue currently. The company has ~21 pending ANDAs in the US and even higher number of filings in the EU with an estimate of 5-7 new launches in the next two years, indicating strong growth potential in the formulations space in near to mid-term.
Further, backward integration with own APIs would help in mitigation pricing pressure and API supplies to US would add to growth. We expect formulations and APIs to register revenue CAGR of 65.4% and 31.2% over FY17-20 and contribute 16% and 53%, respectively to overall revenue by FY20E.
The company has formed a JV with its customer ICE to cater to custom synthesis business. The company would continue to account ~`2.5-3 billion under its head as it gradually shifts the whole business to the JV over the next 2-3 years.
Profit/loss from this JV gets recognised below EBITDA as per accounting norms. Simultaneously, the company is investing in its subsidiaries that are developing novel drug delivery systems, NDDS like thin oral films, transdermal patches, nano-technology, among others. NDDS and biosimilars are longer term initiatives and would ensure growth continuity.