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Thursday, December 10, 2009

Smruthi organics Ltd:Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis

Scripscan:Smruthi organics Ltd

Story:Smruthi organics Ltd (SOL) is engaged in the manufacturing and marketing of Active Pharmaceutical Ingredients (API). SOL also manufactures some drug intermediates, photography developing and specialty chemicals. SOL has two manufacturingsites: Unit I - MIDC Akkalkot Road and Unit II MIDC Chincholi (both near Solapur Maharashtra). Manufacturing of API is done at Unit II, while Unit I acts as a supporting unit to Unit II, engaged in manufacturing intermediates. Unit II is approved by the USFDA in 2007 and also certified by EU regulatory authorities for Norfloxacin, Metformin HCI and Carbidopa.SOL has established marketing relationships in both EU and US markets with top global pharmaceutical companies. Although majority of the customers operate in the generic space, SOL also does business with large innovator Pharma companies. SOL has entered into long term (up to 5 years) multi product contracts with numerous clients and has secured substantial business.Owing to greater demand of several products, SOL plans to file 3 more DMFs (Drug master Files) each in US and EU in FY10.Norfloxacin, Metformin Hcl and Ciprofloaxacin are three of its large products in FY09 accounting for 69% of its sales.With consolidation in the international pharmaceutical industry and growth in demand for lifestyle related products, the demand for API is increasing multifold. SOL can independently or in conjunction with the customer develop optimized synthesis process, perform scale-up and process validations, compile DMF and provide the customer with regulatory support for finished formulation dossier registration. SOL has marketing relationships in both US and EU markets with top global pharmaceutical companies. Although majority of the customers operate in the generic space, it also has business with large innovator Pharma companies. Its main focus going forward is on contract manufacturing with 75-80% coming from exports (incl deemed exports)in FY10 and more than 90% in FY11 of the total revenues.At the CMP the stock is trading at 16.7x FY09 EPS of Rs.4.0 and 10.8x FY10E EPS of Rs.13.4 (quick estimates). With all approvals and facilities in place and expected new launches, SOL’s sales and profitability are set to improve over the next few years. The first hint of this is available in its Q2FY10 results, where it benefited out of approvals received for some of its products for which exports have begun. We feel that the stock can be bought at the CMP and added on dips to Rs.53-57 band for sequential targets of Rs.81 and Rs.92 over the next few quarters.

Source:Hdfc sec

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