The last decade has seen PML catapult from a mere Rs 5 crore company to a decent Rs 85 crore firm in terms of revenue in fiscal year 2007
New Delhi-based Poly Medicure Ltd (PML) is a relatively new entrant into the medical disposables market. The last decade has seen PML catapult from a mere Rs 5 crore company to a decent Rs 85 crore firm in terms of revenue in fiscal year 2007. PML follows a mix of both organic and inorganic growth of models. It is currently on an expansion mode and has also taken its first step into the US market with the acquisition of Safety Syringes Inc. Exports contributes to about 80% of PML’s sales. The company is expected to perform well on the backdrop of growing domestic demand and continued exports focus.
Business
PML is a leading player in the manufacturing of medical disposables. Its product ranges include infusion therapy, anesthesia, urology, blood management, gastroenterology products, surgery and wound drainage products and other products like catheters. “We are number two in terms of product portfolio with 40 items under our belt and we are planning to add another 10 new products in future,” said Himanshu Baid, managing director of the company.
“We have also applied to the US FDA for four products the approvals for which are expected by August-September this fiscal,” Himanshu added. The medical disposable market, though it is difficult to estimate, is over Rs 1,200 crore and is growing at the rate of 10-12%. This industry is dominated by unorganised players. Romsons Scientific and Surgical Industries Pvt Ltd, Eastern Medikit Ltd, Hindusthan Syringes & Medical Devices Ltd are the few notable players in the organised sector.
Expansions and acquisitions
PML is on an expansion mode and plans to scale up the capacities to over 200 million pieces per annum by the end of financial year 2008.
The Haridwar (Uttaranchal) Phase-I expansion is already completed and it has added capacity of 30 million pieces per annum. In the second phase of expansion which is expected to be completed by December-end, the company is planning to add 50-60 million pieces per annum.
The second phase of expansion could see introduction of new products like insulin syringes, blood holders and special safety syringes, which will give better realisations. The capex for the expansions have been through a mix of internal accruals and debt. The company spends currently 1% of its sales on research and development and plans to increase this amount to 3-3.5% in the next five years.
PML recently acquired US-based Safety Syringes, which holds eight patents and two FDA approvals for safety medical devices.
This acquisition is expected to increase its US business operations to $8 million in the next three years.
PML has imported their machinery to manufacture safety products in India and export to the US as per FDA standards. The company plans to use only four of the eight patents to being with. It also recently tied up with a mid-sized US company to market its products there. PML is also on the look out for strategic partners to funnel future growth.
Investment rationalePML has strong export revenue focus but it is not ignoring growth in domestic revenue either. PML is planning to grow by 40% in the next 2-3 years in the domestic segment. Introduction of new products and capacity addition in SEZs is expected to result in incremental margins. Long-term focus on acquiring original equipment manufacturer to grow the value chain and a well diversified portfolio is expected to create immense value in the company.
Concerns
Higher raw material prices due to rising oil prices is a major concern as almost 70% of the raw materials are imported. In spite of a natural hedge due to exports and PML’s active forward cover, increase in crude prices is a concern.
Chinese threat to PML is minimal as there are stringent norms for allowing the entry of safety products in India and other destinations. Even if the Chinese products are complying with the safety norms, only 25% of the products of PML are exposed to the competition while the rest are out of it.
ValuationsAt the CMP of Rs 145, the stock is available at 7.12x its FY08 earnings and at 5.08x its FY09 earnings. Investors can take a long-term bet on this stock with a 30-40% return in the medium to long term to time frame.
Disclaimer: The author does not hold any shares in the company.
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