Hester Pharmaceuticals Ltd,(CMP: Rs.176.05)BUY @Rs. 148-166

Hester Pharmaceuticals Ltd. (CMP: Rs.176.05)

HPL, incorporated in 1987, is an active manufacturer, marketer and distributor of veterinary and pharmaceutical products. HPL’s plant is located in Mehsana, Gujarat. HPL had set up its project with an installed capacity of 395 mn doses of Live and Killed vaccines with world acclaimed technology of MBL, USA and Ghen, Japan. It represents international producers like Ghen Corporation, Japan; Marine Biological Labs, USA; Biogalgalted Labs, Israel; and Kermin Europa, Belgium.

HPL delivered flattish growth in revenues on a q-o-q basis due to deliberate slow ramp up of capacities, but y-o-y, it delivered strong growth in revenues.

HPL registered revenues of Rs. 8.84 crs in Q3 FY08 as compared to Rs. 5.3 crs in Q3 FY07, a growth of 66.79%. However, on a q-oq basis, the sales were flat recording a marginal growth of 1.03%. The reason for slow growth in sales is due to deliberate slow

ramping up of capacities. HPL is keen on keeping its inventory and receivables position under control. HPL has been dispatching its doses in batches of economical sizes. The batch size could improve once the expanded capacity is utilised completely.

There has been a marginal reduction in the operating margins on a q-o-q basis from 54.29% in Q2 FY08 to 53.51% in Q3 FY08. The margins would sustain at around this level going forward.

Recommendation:

The stock is quoting a P/E of 11.5 times its FY08 (E) earnings and 9.1 times its FY09 (E) earnings. One can enter the stock in the price band of Rs. 148-166 band for a 20% + return in 2-3 quarters.

HDSEC, Result Update – Q3FY08, February 1, 2008