Jenburkt Pharma- 49 Pages Analysis Report-With Div.Yield of 6.15 % & RoCE of 40 G.Bet

Provided here is the Link to a detailed 49 Pages analysis report on Jenburkt Pharma...

The report can be downloaded from :

http://www.scribd.com/doc/46193951/Jenburkt-Research-03012011

Rgds.

Mahesh



Contents of the Report :- Theme of the Report

Investment Rationale
Brief Industry Overview



Brief Company Overview



Management

Management Quality

Management Capability



Products Overview

Current Product Portfolio & Distribution Network

Product Strategy

Product Pipeline



Financials

Past Financial Track Record of Last 10 Years

Key Financial Ratios like RoCE, RoE & D/E for last 5 Years

Likely Future Financials



Current Valuation



Valuation Commanded by Peers alongwith Comparision of Key Financial Parameters



Conclusion



Tabular Data depicting competitive Brands, Pricing, and Overview of most of the products of Jenburkt

High Margin Products

Unique Combination Niche Products

Other Products

Jenburkt has to strike only Once for Extracting Returns for Us

I missed out to add possible risks to investing in Jenburkt.. so enlisting them below before procedding further :

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(1) Jenburkt's Low scale.

(2) Pharmaceutical industry is highly regulated and governed by a constant threat of policy decision by NPPA, DGCI, local Food and Drug Authorities and any change can have varying effect on company's performance.

(3) Presence of many organized players in the industry and offerings of cheap generic products from unorganized sector is always a threat for a company like Jenburkt.

(4) As co. moves up the value chain, it is entering the markets dominated by multi-nationals and large Indian Companies. But, then this is natural phase of growth.

(5) In case of certain products (like Nervijen), seeing Jenburkt's success, many regional companies have introduced products at low prices, which does affect the co..

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Now, after enlisting the possible risks, I would like to dwell further on choosing a small-cap stock like Jenburkt for such detailed research. If we look at past I do agree that players like Ajanta look more attractive than Jenburkt because of their scale as well as basket of products they have. Even for that matter Bafna might look attractive because of its strategy of growth going forward. However, inspite of all these what attracted me towards Jenburkt is its business model. Infact if I would have not interacted with the management, I would have definetly leaned towards Ajanta or some other player in the space. But, the management's strategy going forward is what attracting me towards this co.



You know at the scale at which Jenburkt is vis-a-vis other players like Ajanta, it has to strike only once whereas they need to strike everytime to extract returns for us. This is what I felt and I might be wrong... Management's strategy is to chart on a steady sustainable growth without much leverage. They have shifted their focus completely to R&D and export markets.. As you must be aware that their R&D unit got DSIR-recognition only before a year... so going forward they want this unit to be a money-spinner by introducing many first-time products in India..



Whether you are aware or not regarding their Nervijen brand i don't know, but considering the fact that in 2004, Jenburkt was the first company in India to introduce this brand for nerve damage and within a year it became one of the most favoured brand amongst its target doctors, I feel the the capability of R&D Unit is without doubt for me... I agree that subsequent cheaper launches by other players like Mankind Pharma affected Jenburkt, but here we need to look at the focus and the initiatives of the team of Jenburkt... I am told that few unique products are under clinical trial stage and FY12 could very well see their launch thats what i feel so since management is quite tightlipped rgdg. this.



Also, management has indicated that going forward also, it wishes to distribute generously the profits earned amongst shareholders so I feel even with a 30 % payout ratio w.r.t. net profit of current year, we could easily get a 5 rs. dividend.



So, I thought that here I am having a company whose products and all might not look compelling prima facie but management is very much focussed in the business and their strategy is to continue growing topline if not at brisk pace then at steady pace, and side-by-side concentrate on R&D efforts which might yield great fruits in future... while doing all these one thing management is stressing is that it wants to turn zero-debt within few years---a surprising thing since all the companies in this space want to take debt and expand aggresively--- so i put a second thought as to whether management is static or not --- the answer to that was management is not static but is having a vision to concentrate on margins and only margins ---- the company don't want to get counted amongst the herd but wants to carve out a niche image of itslef in the space ---- here, i thought that companies with a zer-debt status as well as innovative products under their kitty always get premium valuation :

Hence, I concluded that Jenburkt is the safest investment bet I can get in pharma space which might not multiply my money immediately but will give me steady returns now and if any innovation materialises then it will multiply my money in no time.



Thats why i told you that i feel that Jenburkt needs to strike only once but other players need to strike everytime to extract returns for us... All said, I must admit that Ajanta is a much better growth-play than Jenburkt



Rgds.

Mahesh

Re: Jenburkt Pharma- 49 Pages Analysis Report-With Div.Yield of 6.15 % & RoCE of 40 G

Niche pharma formulations company Jenburkt Pharmaceuticals Ltd. announced its Q3FY11 results on 29th Jan. 2011. Robust margin expansion continues in Q3FY11 with consistent topline growth which is likely to make FY11 the highest cash-generating fiscal year in the company's history of existence. This augurs very well for the future of the company as the company is on verge of launching a couple of innovative products in Indian market with a focus on brand-building. Given below are the highlights of Q3FY11 results :

(1) Jenburkt reported a topline of Rs. 14.57 cr. in Q3FY11 which translates into YoY growth of 17.3 %.

(2) EBITDA for Q3FY11 stands at Rs. 2.65 cr. which translates into a YoY growth of 60.6 %. EBITDA margins stand at a healthy 18.2 % which translate into an expansion of 490 basis points YoY. It is worthwhile to note here that all the three qrtrs. of FY11 have seen healthy expansion of margins which is a clear result of the company's focus on high margin products as well as pick-up in product approvals offshore.

(3) Operating Profit for Q3FY11 stands at Rs. 2.42 cr. which translates into a YoY growth of 68 %. OPM stands at a healthy 16.6 % which translates into an expansion of 501 basis points YoY. It is worthwhile to note here that all the three qrtrs. of FY11 have seen healthy expansion of margins which is a clear result of the company's focus on high margin products as well as pick up in product approvals offshore.

(4) PAT (Net Profit) for Q3FY11 stands at Rs. 1.7 cr. which translates into a YoY growth of 136.1 %. NPM stands at a healthy 11.7 % which translates into an expansion of 590 basis points YoY.

(5) For nine months ending December 2010, Jenburkt's topline stands at Rs. 42.96 cr., Operating Profit at Rs. 7.43 cr. while PAT stands at Rs. 5.08 cr. which translates into a YoY growth of 9.8 %, 93.5 % and 135.2 % respectively. It is worthwhile to note here that in the first nine months itself, company has grossed a net profit of Rs. 5.08 cr. which is even higher than entire FY10's net profit of Rs. 3.77 cr. This marks the start of an era of investments made by the company over last decade initialising bearing fruits which augurs very well for the company's financials in the medium to long term.

(6) One most important thing to note here with regards to quality of earnings reported so far in FY11 by the company is that the astonishing growth in margins is coupled with a healthy increase in depreciation and tax outgo which themselves have risen by 18 % and 51.7 % respectively. The growth has entirely come from the core business of the company without any increase in other income. The Tax outgo stands at 28.7 % of reported operating profit which vindicates high quality earning reported by the company.

(7) R&D expense for Q3FY11 stands at 2.91 % of topline which is the highest in company's history and signals stage getting set for innovative product launches by the company in FY12.

(8) Employee Cost for nine months ending December 2010 has increased by 13.6 % YoY and stands at 19.3 % of reported topline which signals strengthening of marketing network by the company as also senior level recruitment by the company for brand-building.

(9) Promoters continue to show confidence in the future of the company which is evident from a further creeping acquisition of 0.26 % equity of the company by the promoters in Q3FY11. Promoters holding in the company now stands at 44.2 % up from 43.94 % of Q2FY11 & 42.75 % of FY10.


Revision in Projected Financials :

Better than expected margins registered by the company in Q3FY11 have necessited an upward revision in projected financials of next 3 years. Here again, Considering the business traction as well as the product pipeline Jenburkt has, as also making part consideration for the fruits expected from the investments made by the company so far, we will arrive at a conservative estimate for next 3 years so that management has an opportunity to surpass them again. Financials forecast for next 3 years is given below :



FY'11
FY'12
FY'13
(in ` cr.)



Sales
55.8
74.3
99.6
EBIDTA
10.01
14.45
20.1
Operating Profit
9.2
13.1
18.4
Net Profit
6.41
9.8
14.1

It is worthwhile to mention here again the vision of the management to chart on the self-sustainable growth plan while turning a zero-debt company within few years. We expect Jenburkt to turn zero-debt in FY13 and expect no meaningful fund-raising via equity issuances unless any major expansion is planned which is not talked till date.
Based on the projected financials, Jenburkt is expected to end current FY11 with an EPS of Rs. 13.81, FY12 with an EPS of Rs. 21.12 and FY13 with an EPS of Rs. 30.4.


Likely Dividend for FY11 :

Because of the robust cash generated by the company in FY11 as also management's policy of distributing the cash handsomely amongst minority shareholders we expect a Dividend of minimum Rs. 5 per share which will mean a dividend yield of 6.1 % at current market rate of Rs. 81.9.


Outlook on the Company :

We maintain our earlier argument that it is rare to find safe companies like Jenburkt with a RoCE and RoE of 35 % + and a dividend yield of 6.1 % available at a P/E of just 5.93 and at EV/EBITDA of just 3.41 in an uncertain market that we have today. Such robust parameters are coupled with a good visibility of future growth in the form of company's focus on high margin products and brand-building as also likely launch of two innovative products in FY12. On the whiff of smallest positive trigger the stock is expected to get rerated and reach our estimated fair price of Rs. 158 very soon.


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