Poly Medicure - A Multibagger in the Making Industry – Healthcare – Medical Disposables
BSE Code – 531768 Current Price – Rs. 145 Target Price – Rs. 310 Time Frame – Medium Term Equity Capital – 5.50 cr. Promoter Holding – 49 % FY09 Revenue – 112.22 cr. FY09 Operating Profit – 10.79 cr. FY09 Net Profit – 5.92 cr. FY09 EPS – 10.76 FY10 1st Half Revenue – 62.49 cr. FY10 1st Half Operating Profit – 8.55 cr. FY10 1st Half Net Profit – 6.32 cr. FY10 1st Half EPS – 11.49 FY10 Annualised EPS – 22.98 Investment Rationale – Background : Established in 1995, Poly Medicure today counts amongst world’s leading medical disposables manufacturer with a core focus on R&D and innovation. Research efforts put-in by the company in last several years has led to it filing more than 70 patents out of which it has already got 10 in its kitty with 2 being in world’s largest medical disposables market viz., USA. Polymed has state-of-the-art manufacturing plants in Haridwar, Jaipur & Faridabad in India and one in China and one joint venture in Egypt. It exports nearly 34 % of its produce to Europe while Indian market contributes 25 % to Polymed’s sales. It exports its products to 50 countries currently with Europe being the major market at present. Trigger : Business at its Inflexion Point : The efforts Polymed has put-in since last several years and the aggressive approach Polymed’s management is now pursuing promises the start of golden phase for Polymed staring from current FY10. The efforts which we are talking are the R&D efforts because of which Polymed has, since last 4 years, constantly launched 10 new innovative products every year and has filed for more than 70 patents out of which 10 it has already got with 2 being in USA. The main fruit of these efforts has come in the form of USFDA approval in June 2009 for launch of 5 of Polymed’s products in US market which happens to be the largest and most fruitful market for medical disposables manufacturers. Out of these 5 products which have got approval, 2 products are the one which had got the patent in USA. Hence, launch of these 2 products will mean healthy margin for Polymed. Apart from this, Polymed had launched 2 niche products in Indian market viz., blood collection tubes & insulin syringes in May 2009. Both the products command a healthy domestic market and Polymed expects to sell 25 million blood collection tubes and 30 million insulin syringes in FY10 itself. To add, Polymed has started aggressive marketing efforts in domestic market by opening sales offices in Hyderabad, Chennai & Kolkata. The company is also in active discussion with major hospital groups for co- branded products and a breakthrough with a leading Indian Hospital Chain is expected shortly. In addition, Polymed is also focusing on providing disposable devices to healthcare programmes in Maharashtra, Rajasthan & Gujarat. Within a couple of years, management expects domestic market to contribute 50 % of its sales up from 25 % it contributes at present. Financials – For FY09, Polymed posted a topline of 112 cr. and a bottomline of 5.92 cr. which translates into an EPS of Rs. 10.76. For the 1st Half of FY10 Polymed has posted a topline of 62.49 cr. and a bottomline of 6.32 cr. which translates into a half yearly EPS of Rs. 11.49 and an annualised EPS of Rs. 22.98. By Conservative estimates, Polymed is likely to post a topline of Rs. 132 cr. and a bottomline of 11.5 cr. for FY10 which translates into FY10 EPS of Rs.20.90. In our FY10 estimates, we have included only March2010 qrtr. sales of products to be launched in USA. For FY11, Polymed is expected to post a topline of 186 cr. with bottomline expected to zoom to Rs. 20.40 cr. which will translate into FY11 EPS of Rs. 37. These are only conservative estimates as from 3 out of 5 USFDA approved products viz., IV Catheter, Safety Scalp Vein Set and Safety Infusion Set, Polymed expects to rake in Rs. 50 cr. sales every year. The potential of Polymed’s major product viz., IV Catheter can be judged from the fact that B. Braun AG is going all out to restrict Polymed from selling this product because it has the potential to significantly affect B. Braun’s own product sales as Polymed’s IV Catheter is far more superior and competitive in pricing than B. Braun’s. B. Braun first tried to restrain Polymed in India but it failed to do so as Indian court gave a clean chit to Polymed. Hence, B. Braun did it in its own teritary by restraining Polymed in December 2009 from marketing its IV Catheter in Germany. This restrainment is expected to affect only Germany sales of Polymed and is not expected to have any major impact on its sales in US and other countries. Conclusion : Poly Medicure is a decent medium to long term bet if we consider its business, its financials and recent developments. In current market which is at a 22 month high, an investor needs to look at two angles – First, not to lose the opportunity of multiplying the money by remaining in cash and missing the rally - & Second, not to invest in those stories which seem fully priced at the moment and so have the potential to correct significantly if a correction sets in. Hence, if we look at both the angles then Poly Medicure seems to be the safest bet as : (1) It is operating in a segment which is recession-proof (2) its business is at an inflexion point and one gains most by investing in stories which are on the verge of reaping rewards of past efforts (3) recent developments like USFDA approval, opening of sales offices, focus on domestic as well as international makets, etc. all give safety to future financial growth of the company (4) valuations are very cheap as Polymed’s closest Indian peer (not strictly- as no other listed company is into medical disposables) Opto Circuits is quoting at a 17+ PE while Polymed is available at a PE of 6.9 based of FY10 EPS estimates and at a PE of just 3.9 based on FY11 conservative estimates. This valuation is pretty cheap in current market scenario which calls for a significant rerating of Poly Medicure soon
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