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Monday, December 3, 2007

Hester Pharma:The scrip to give vaccine to your portfolio

Another scrip which was suggested to members on 7th october weekly report .Here is the report.

Scripscan=Hester Pharma
Industry-Poultry vaccines
Target price-260
Duration-8-12 months

Introduction=Hester pharma is one of the largest poultry vaccine manufacturer in india.With work force of around 182(doubled from around employees last year),Hester manufactures 40 differnt kinds of vaccines and supplies live as well as killed vaccines to leading briolers and egg producing enterprise in both domestic as well as in the international market.It is a iso-9002 certified company and has the distinction of winning good manufacturing practises by drug authorities.

Tie-up=Hester is the exclusive distributor for Merial Inc in India who along with Akzo Nobel and AHP are the world leaders in animal health products. The tie-up provides the company to access the live vaccines for Mareks disease in Chicken wherein Merial is the market leader.Hester produces vaccines for Fowl Pox, Fowl Cholera, Bronchitis, Gumboro, AE, LT, REO, EDS and Newcastle diseases, besides combination vaccines.

Moving beyond boundaries-The company has its sales offices in almost all parts of the country and has appointed distributors where it does not have a presence.With nearly all parts of the country covered hester is now planning to expand beyond india.Over the last few months hester has made substantial addition in the plant and machinery to expand capacity and also with the poultry industry getting bigger companies like hester are benefiting the most and thus opening up-of newer oppurtunities to them.The poultry vaccine market in india is increasing at a faster pace.

Export Thrust-The company has been giving a huge thrust on exports and is currently penetrating in the middle east and african markets.Hester hopes to add more than 8-10crs turnover from the export market this year.Hester has an agreement with merial inc,u.s.a as their exclusive distributors for merial"s complete range of poultry vaccines in india.To avail advantages of lower costs of production, many international companies are in talks with the for getting poultry as well as other large animal vaccines manufactured by the company.With the completion of the expansion program,the company is confident of concluding agreements,which will give a tremendous boost in its capacity utilization,thereby improving the bottom line.

Capacity expansion=Due to the on-going over whelming market demand, the company completed its expansion project and the new expanded capacity went on-stream in March 2007.The new expanded capacity is now 500 crore doses as against the earlier capacity of 120 crore doses The results of this capacity enhancement will be seen in this financial year.The new facility has distinct manufacturing areas for chick embryo origin, tissue culture and bacteria vaccines.

Outlook=Apart from consolidating the business in the domestic market the company is aggressively persuing the export business of its products.Also after these massive expansions the company is having now one of the most modern plants in the world.I expect the company to become a a big sourcing agent for animal vaccines for many international companies in the coming future.

Financials&-The company has shown strong consitency in both topline and bottomline over the last 5 years and we beleive that the same trend is likely to continue in the upcoming years.Hester is looking at a turnover of 40crs this yr compared to 22cr last yr with PAT expected to be over 10crs(5.15crs last yr 2007).With a mere equity of 5.2crs ,E.P.S is expected to jump to around 20rs

Valuations=Hester is on the path to exponential growth over the next two years. The current market price of Rs 164 discounts its FY08E earnings of Rs 20 by 8.2x.Given the high revenue and earnings visibility, i believe that the stock is highly undervalued.A discounting in the range of 13x gives us a target price of Rs 260 over the next 8-12 months.I rate the stock an Outperformer.

Why I chose the company-Its into a very exciting space,poultry vaccines.Demand has been rising since last few years at a scorching speed.It has got no listed peers to compare with.Its backed by a dynamic and very aggresive management.The company increased its capacity by over 4 times which speaks about the demand itself.Has got immense potential in exports.Its such a competitive company that even imports cant make any significant dent to it.The company has got a small base,its an emerging story,looks great to opt for.As the company recently expanded its capacity and as the poultry industry is back on track after bird flu hassles,The company is certainly something to watch out for in the bourses.

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