Anu Laboratories is engaged in the manufacturing of basic, advanced intermediates and fine chemicals. The main products of the company include 2,4-Di-Chloro-5-Fluoro Acetophenone (DCFA), chlorohexanone, methyl-4 (4-Chloro 1 oxo butane) a Di-Methyl Acetate, and Poly Aluminium Chloride. It supplies these products to various drug manufacturers, which includes Dr Reddy?s Laboratories. Dr Reddy?s Laboratories accounted for around 47.75% of the company?s revenues during 2006-07. The Hyderabad-based company has a facility at Chilkamarri Village, Mehboobnagar.
Apart from Dr Reddy?s Laboratories, the company caters to Nicholas Piramal, Sun Pharmaceuticals, and Divi?s Laboratories and as regards overseas, the company caters to M/s Teva, Mitsui & Co, Sanofi Aventis, Tradecom Services PTE Limited, and Tanabe. The company exports its products to Israel, Italy, Japan, France, the US, and Singapore. At present its exports comprise 12.37% of the total turnover
Objectives of the issue
The company intends to set up a plant for manufacturing of drug intermediates, including Active Pharmaceutical Ingredients (APIs).
For this, the company plans to use Rs 55 crore of around of the Rs 80-crore issue size, considering the higher end of the price band. It plans to set up a pilot plant for carrying out Contract Research and Manufacturing (CRAM). For this, the company has earmarked Rs 8 crore of the total issue. In order to meet its long-term working capital requirement, it has plans to utilise Rs 16 crore.
Investonomics & valuation
On the operational front, the company has demonstrated a growth in operating profit margin in the region of 9-10%. However, stability and sustainability of the margin would be a key thing that investors need to keep a tab of. So is the case with its NPM. After few quarters, it would be clearer as to whether the company manages sustainable growth.
On the valuation front, the company quotes a P/E of around 18(x) and 19(x) at the lower and higher end of the price band respectively. Its peers like SMS Pharmaceuticals (sales-Rs 175 crore, PAT-Rs 21 crore) and Dishman Pharma (annualised sales-Rs 133 crore, annualised PAT-Rs 28 crore), quote a P/E of around 8.9(x) and 21(x) respectively. It must be noted that these are bigger companies
The company does not have long-term contracts with customers and typically operates on the basis of purchase orders. At present, it doesn?t have any formal arrangement for supply of any of its products, except for Ciprofloxacin Hcl, for which they have entered into formal agreement with Dr Reddy?s Laboratories Limited. And Ciprofloxacin Hcl contributes negligible revenues towards its total sales.
Also, its promoter group company Nitya Laboratories Limited is in the same line of business and this may create a potential conflict of interest. Nitya Laboratories is also engaged in the manufacture of intermediates. Investors must take into account these facts before investing.
