Healthy dose

Shasun Pharma, a leading pharma company in the generics space, is engaged in manufacturing active pharmaceutical ingredients (APIs), their intermediates and enteric coating excipients with a significant presence in some key generics.

What attracted my attention to it today was the crash of more than 11% today on the back of disappointing Q3 results. This is not the first instance of such a crash in this scrip. The earlier instance was in Jan ’11 when it had come down to 76 levels (which was even lower than the current 87), apparently due to forex losses from rupee depreciation. And in the following 18 months, it rose to about 160 following strong performance from its UK tie-ups and operations. Even today, the reasoning give by management for the steep drop in quarterly profits is price pressure on one of the APIs which they were exporting to the US and consequent reduction in price to retain market share. But, the quantities did not move to the extent that they had expected. However, the management has given a strong guidance for the coming quarter following stability in pricing.

Shasun has created a strong product portfolio, building on its R&D expertise, regulatory capabilities and multi scale production capacities. Today, Shasun is one of the largest producers of Ibuprofen worldwide. The company offers derivatives of Ibuprofen like Ibuprofen Sodium, Ibuprofen Lysinate and S+Ibuprofen. It is also one of the major producers of Ranitidine and Nizatidine in the world. Its products are exported to countries across North America, Europe, Asia and Latin America.

Active presence in CRAMS in both API as well as the formulations businesses creates a huge opportunity for Shasun to increase and diversify its revenue base. In addition, the company has several other APIs under development for products, which would turn generic in the next three to five years. Its Greenfield facility in Vizag will enable Shasun Pharma to generate sustainable cash flows over the coming years.

At today’s price, it is quoting @P/E of 7.7 ttm which looks pretty low for a company of its size (10K cr sales) and pedigree. If its past record is anything to go by, it may not be too long before it bounces back to the levels mentioned earlier, giving a huge appreciation over the current price.