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Sunday, December 1, 2019

Shivalik Rasayan ltd: AGM Notes and Our take on it

Scripscan : Shivalik Rasayan ltd

1..The development of site at Dahej is on track and the company is working with strict monitoring to make sure that by December atleast 2 blocks are made operational.The infrastructure at Dahej supports 8 blocks – 4 for Oncology (1 Intermediates) and 4 for General (Non-Oncology) products (2 Intermediates). As a strategy its making sure that the company is not dependent on any external vendor for Intermediates or any key ingredients used in the manufacturing of APIs.

2..Once 4 blocks are operational and running, depending upon the demand timelines and business visibility, company will start adding additional blocks 1 by 1. This is to make sure, to have enough liquidity in hand to meet working capital and R&D expense. Once sales start coming in and capacity starts getting utilizing, it will start operations at other blocks. Infrastructure already is made to support 8 blocks, utilities are already installed supporting all 8 blocks, it will take 3-6 months for installation in additional blocks.

3..R&D Team is currently working on atleast 25 different molecules for API and work on 8 have been successfully concluded at R&D level. Once the site at Dahej is operational which is expected by December, co will immediately initiate the scale-up and Exhibit batches of these 8 API’s. This activity will take 3-4 months and by December 2020, its target is to file 8 DMF’s with USFDA. As soon as company files DMFs, it will trigger USFDA inspection and its preparing for March-June 2021 for USFDA inspection.

4..The Company is Putting strategy on leveraging the developments across different geographies. DMF for US & CEP in EU filing to be targeted parallelly. Focusing on other markets apart from US to be explored keenly to reduce dependent on single geography. Already in dialogue with different potential partners in Australia, Canada and Japan.

5..There is a specific inquiry from one Asian country for a Speciality chemical which company is currently exploring. The team visited the country last month to understand the clients requirements. Its progressing on samples and further dialogue to explore potential business. In case, things fall in place, co will have 1 dedicated block for this speciality chemical for the client only in that country.

6.. Compliance: Company been heavily focussing on all USFDA inspections made at every site in India in last 12-18 months. The team been understanding each critical observation that USFDA has made during their inspection to other sites and its confident that company will not face any such issues in future. Lot of efforts and investment has also been made in procurement and designing of equipment at plant level to have smooth and best infrastructure in place.

7..There are lot of enquiries already from different vendors on API and confident of good business once it initiates operations and have all approvals in place. Company has recruited industry veterans from big Pharma cos in its endeavour to reach massive scale by 2023.

Our Take: The Company’s core business of Pesticides been doing steadily doing around 50crs sales. Pricing power has helped it to scale revenues as it’s been operating at full capacity for quite a while now. The core business doesn’t make it an exciting bet. The API division is the real deal which can be its cash cow going ahead. Shivalik’s Few APIs namely Capecitabine,Azactidine,Busulfan Etc are much in demand and very costly. The first one costs 650$ per kilo. The second one which is Azacitidine is super costly,say 15000$ per Kg. Busulfan is super duper costly. Cost is around 125000$ per kilo. This are amazing products and as can be seen very high value in nature. We wouldn’t call it as complex as one thinks but it has high constraints. Being oncology in nature,you need to manage lot of compliance which the company is doing pretty meticulously and these aspects itself creates the entry barriers. By 2021-22,Shivalik we feel can easily do 150crs from this APIs with net margins of 20%. Company at present marketcap is just 270crs. Also it owns more than 40% stake in its forward integration baby Medicamen Biotech(Shivalik will supply the APIs for Medicamens oncology products which gives it a secured perpetual client) which quotes at 400cr mcap. They also have a land worth 50-75crs in Hardwar which could be used for future expansion. All this makes its valuations way more compelling than what it looks on first glance. We remain high on the oncology and related plays. 

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DISCLAIMER - The writers are partners of SA Investment Advisors, a SEBI registered investment advisory firm. They along with their family members may have position in the company discussed above.

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