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Wednesday, May 20, 2009

Anu's Laboratories Ltd:-Future outlook and growth prospects

Scripscan:Anu's Laboratories Ltd
Traded in:bse

Story:Incorporated in 1996, Anu''s Labs is a pharma company involved in basic and advanced intermediates, APIs and fine chemicals. The company is also involved in contract manufacturing of intermediates, which are purchased by bulk drug manufacturers for further processing. The company''s top five products together contribute 96% to its total revenues. Anu''s Labs is the market leader in most of these products, commanding 60-70% market share. The company has an in-house research and development division, concentrated on structured process chemistry. In the domestic market, Dr Reddy''s Labs is Anu''s Labs'' largest customer, contributing 47% to its total revenues. Hiran Orgochem, Sun Pharma, Sreepathi Pharma and Matrix Labs are its other major customers. Exports constitute nearly 20% of the company''s business, with Israel-based Teva, the world''s largest generic player, being its largest overseas customer. Sales to Teva comprise 12.5% of Anu''s Labs'' total turnover. ABIC, Polpharma and Sanofi Aventis are other major overseas buyers of the company''s products.Anu''s Labs intends to expand its manufacturing capacity by 200 tonnes. It is also setting up a pilot plant to explore opportunities in the contract research and manufacturing services (CRAMS) sector.Two years ago, Anu''s Labs, along with its promoters, had bought nearly 50% in loss-making Nitya Laboratories, to turn it around. However, Nitya, which manufactures bulk drugs and intermediates, is still a sick company. Further, given the nature of its work, Anu''s Labs may face a conflict of interest with Nitya.At the given size and growth, Anu''s Labs'' P/E is slightly higher than that of its peers including SMS Pharma and Neuland Labs.While the company''s PBDIT margin is similar to that of other pharma companies, its return on capital employed (RoCE), at 49, is substantially higher compared to its peers, which have RoCE between 15 and 25. High product and client concentration is one of its main concerns. Moreover, it faces stiff competition from Chinese imports. This forces the company to focus on being cost-competitive. But investors with high risk appetite can consider the scrip at dips as the company operates in a growth-oriented business in the defensive pharma sector.

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