>ANKUR DRUGS (HDFC SECURITIES)

Rapid film products – future growth driver
We recently met the management of Ankur Drugs and Pharma (ADPL). Key take aways from the meet were as follows: ADPL is the largest contract manufacturer of pharma products in India. The company’s Baddi facility is fully automated and complies with the US FDA specifications. The company caters to most domestic and MNC pharma companies operating in India. ADPL has created a dedicated facility to manufacture effervescent tablets (prospects in this business are very good, due to little competition). The company has acquired rapid film and skin patches patented technology from APR, Switzerland, and Labtec, Germany. ADPL will manufacture these products in India and supply them in India and 15 neighboring countries. The rapid film business is likely to be future growth driver for the company. The increase in global outsourcing of pharmaceutical formulations is likely to be of great benefit to the company.

Edge over competition
ADPL has an edge over its competitors as it can offer the entire range of pharma manufacturing facilities under one roof. Moreover, it enjoys economies of scale. Its major manufacturing facility is located at Baddi and this offers excise duty and income tax advantages, which give it an edge over some of its competitors. The tax advantages are for a long period (five to ten years) and, during this time, the company would be cost competitive.

Pricing pressure
There is increasing pressure from the US Federal Government and other governments on multi-national pharmaceutical companies to reduce prices of drugs. With the patents of major drugs expiring over the next few years and the introduction of generic products, most governments are promoting to use generics to bring down healthcare costs.MNC pharma companies are faced with tremendous pressures on drug prices. This is likely to result in outsourcing of formulations from India.

Positive outlook
The CMP of Rs 219 discounts the FY10 annualised EPS of Rs41.6 (inclusive of forex gains) by 5.3x and FY10 annualised EPS of Rs35.1 (excluding forex gains) by 6.2x. We are positive on the long term prospects of the company due to the potential upsides from rapid film and skin patch products and increase in outsourcing by MNC pharma companies.

To read the full report: ANKUR DRUGS