Anu’s Laboratories Ltd (Anulabs), the Hyderabad-based pharmaceutical company, is a manufacturer and supplier of basic and advanced quality drug intermediates and active pharma ingredients (API).
Anu’s Laboratories Ltd (Anulabs), the Hyderabad-based pharmaceutical company, is a manufacturer and supplier of basic and advanced quality drug intermediates and active pharma ingredients (API).
Anulabs started of with supplying to Indian pharma companies and later expanded into exports to Israel. Thereon, its exports base expanded to the US, Japan and Europe.
Anulabs launched an initial public offering in June to raise funds for expansion. The proceeds from the public issue were used to start a new manufacturing plant for drug intermediates (APIs) and for setting up a pilot plant for contract research and manufacturing (CRAMS). API and CRAMS will give a major boost to the company’s revenues and also expand its exports.
Business
Anulabs offers a wide range of complex organic molecules and also extends its support to synthesis of new chemical entities. The firm has established itself as a leader in some of the basic intermediates such as 2,4 dichloro5-fluoro acetophenone and di-methyl acetate.
Optimised process has resulted in the two intermediates becoming the flagship products for Anulabs. These two intermediates contribute around 60% to the company’s revenues.
The company also offers other intermediates such as 2-chlorohexanone and 1,3-dibromo propane.
However, Anulabs is seeking to de-risk revenues generated by its two brand leaders.
So, it is now emphasising on other basic intermediates such as ortho hydroxy benzaldehyde, 2-chloroacetamide, potassium and sodium t-butoxide powder.
Anulabs also offers fine chemicals in the form of a wide range of complex organic molecules synthesised within custom synthesis, and contract research programme.
Investment rationale
Anulabs is a well-established manufacturer and supplier of basic and advanced intermediates and has an excellent client basket. Its client base extends from major pharma companies in the domestic market to controlled and matured markets such as Europe, the US, Japan and other emerging pharma markets. Its two basic intermediates — 2,4 dichloro 5- fluoro acetophenone and di-methyl acetate — are the market leaders. These two intermediates will, therefore, keep driving its revenues.
Anulabs’ developing product basket and also the products that are in its pipeline offer big revenue opportunities for the firm. Ciprofloxacin is said to be a major revenue-generating antibiotic. Pentoxyfyline is also a very popular product, which is used for increasing the microcirculation of blood.
Fexofenadine has emerged as a well-prescribed anti-allergic and diltiazem is a time tested medicine for treating cardiovascular disorders. Iopamodol and naproxen are also very successful molecules. Thus, intermediates for all these molecules have great revenue generating possibilities and can drive Anulabs’ growth. Chinese intermediates have had a big market in India and abroad. Lot of Indian and international companies have been using cost-effective Chinese intermediates. However, since China is hosting the Olympic Games, the authorities have suspended production of some of the intermediates. This has reduced the availability of Chinese intermediates in the market and has also pushed up prices.
Here’s where Anulabs and other companies stand to benefit. The company’s new intermediates plant will help it start production of API products that are in the pipeline. The pilot plant will also boost the company’s contract manufacturing activities. At present, Anulabs has a contract manufacturing agreement in place with Dr Reddy’s Laboratories for manufacturing ciprofloxacin. However, it is the CRAMS business that has immense revenue potentials. Both API and CRAMS will also provide impetus to its exports, which currently contribute 15% to total revenues.
Concerns
Anulabs gets almost 60% of its revenues from its two basic intermediates — 2,4 dichloro 5- fluoro acetophenone and di-methyl acetate. Therefore, it is crucial for the firm to develop other sources of revenues.
Anulabs gets most of its revenues from its top 10 customers. So, if it loses even one customer — for example Dr Reddy’s Lab, which contributed 48% to its revenues in FY07 — its revenues could be severely dented.
Growth of Anulabs also depends on the completion of its two plants. Both API and CRAMS business growth can be severely affected if there’s any delay in the execution of these projects.
Anulabs also doesn’t have any major supply agreement for raw materials in place. This has made the company extremely vulnerable to fluctuations in raw material costs. Also, any unfavourable ruling on its pending land disputes may affect its prospects.
Valuations
Anulabs saw its topline grow at 24.6% in FY08. However, in the first quarter of the fiscal, its topline declined by 15.3% sequentially. There was a 16% sequential de-growth in its net profit despite Anulabs maintaining its margins. Sequential fall of revenues and profits may be because Anulabs did not have any long-term contracts with customers. Anulabs operates on the basis of purchase orders. So, the decline may have been because of a delay in orders and it may gain on growth in the coming quarters.
However, looking at its expansion plans, Anulabs seems to have good long-term growth prospects. These prospects will, however, depend upon the timely execution of projects. This is also crucial for Anulabs’ growth in the fields of API and CRAMS. The success of its other products is also important as its revenues largely depend on its two flagship intermediates.
Thus, looking its expansion plans and the products in the pipeline, Anulabs holds promise for growth in both API and CRAMS segments. However, investors willing to buy the stock will have to keep a close watch on its new orders. Also, investors should watch out for the success rate of its new products and the timely execution of its manufacturing facilities.
Disclaimer: The author does not hold any shares in the company.
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