Recommendation from a Pharmaceuticals & Drugs Company
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
RPG LIFE SCIENCES: KEEPING GOOD HEALTH
HERE IS WHY
β Strong presence in global pharmaceutical market
β Well-established R&D
β Placed in a financially profitable position
The Indian pharmaceutical industry plays a prominent role in the global context. India is one of the biggest suppliers of low-cost vaccines in the world. According to a recent EY FICCI report, as there has been a growing consensus over providing new innovative therapies to patients, the Indian pharmaceutical market is expected to reach USD 65 billion by the end of 2024 and is estimated to touch USD 130 billion in value by the end of 2030. The growth of the Indian pharmaceutical industry is largely supported by government initiatives and programmes.
The sector supplies over 50 per cent of the global demand for various vaccines, 40 per cent of the generic demand in the US and 25 per cent of all medicines in the UK. Taking into account the growth potential of this sector, our scrip recommendation is RPG Life Sciences. The company is engaged in the manufacturing and marketing of formulations in finished dosage forms and active pharmaceutical ingredients (APIs) in the domestic and international market.
It is a part of the RPG Group, which is a diversified conglomerate with interests in infrastructure, tyres, information technology, pharmaceuticals, energy and plantations. The group is headed by Harsh Goenka. The company’s domestic formulations business benefits from its strong research and development and its brands, which continue to enjoy an established market share in their respective therapeutic segments. It operates in various therapeutic areas, which include, among others, nephrology, gastro-intestinal, pain management and cardio-vascular treatments.
The domestic formulations business continues to be its major driver of revenue. In Q4FY24, on a standalone basis, the net sales of the company rose by 7.17 per cent YoY to βΉ126.99 crore compared to βΉ118.49 crore from the previous year’s same quarter. On a sequential basis, its revenue decreased by 17.38 per cent from βΉ153.70 crore. For Q4FY24, the PBIDT excluding other income increased by 30.23 per cent at βΉ20.72 crore from βΉ15.91 crore in the previous year’s same quarter. The profit after tax (PAT) showed growth of 27.92 per cent at βΉ13.24 crore from βΉ10.35 crore in the previous year’s same quarter.
On a sequential basis, its net profit decreased by 49.96 per cent from βΉ26.46 crore. The company’s focus on cost efficiencies, sales force productivity and operational improvements could lead to higher margins and better resource allocation for growth initiatives. It has a targeted research and development pipeline to focus on three segments and 70 new products. The company appears to be well-positioned to capitalise on this trend with its lifecycle management programme for legacy brands and the launch of new products.
The Indian pharmaceutical market is expected to continue growing significantly and RPG Life Sciences stands to benefit from this evolvement by leveraging its domestic presence and brand recognition. The company is currently trading at a PE of 29.3 times as against the industry PE of 33.2 times. The shares of the company are trading at a PE to growth ratio of less than one, indicating undervaluation. In the last three years the company has delivered average ROE of 24.1 per cent and ROCE of 33 per cent. Given all these financial metrics, we recommend BUY.
