Ind-Swift Labs FY11 cons revenue grows by 32.3%: ICRA

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Ind-Swift Labs FY11 cons revenue grows by 32.3%: ICRA

ICRA Research has come out with its report on Ind-Swift Laboratories result.

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Ind-Swift Labs BSE | NSE 29/05/12 Are Mutual Funds betting on Ind-Swift Labs?

ICRA Research has come out with its report on Ind-Swift Laboratories result.

Ind-Swift Laboratories Limited (ISLL)  on a consolidated basis posted a strong revenue growth of 32.3% in FY11, higher than our estimates primarily on account of substantial scale-up in menthol business during the last quarter of the financial year and healthy growth in its existing API business. On profitability front, while operating margins were marginally lower our estimates on account of change in product mix (i.e. contribution from lower margin menthol business increased), profit after tax (PAT) at Rs. 89.5 crore was higher than our estimates on account of lower tax out go and creation of deferred tax asset.

We believe, ISLL would continue to post healthy revenue and profitability growth over the medium term driven by new product launches, supplies to generic players in regulated markets and scale-up in menthol business. We would present a detailed analysis & revised estimates post management meeting and availability of detailed financial results. We retain the fundamental grade of "3/5" assigned to ISLL, considering company's plans to strengthen its business model through tie-ups with generic players and diversify its product offering through launch of niche, complex chemistry molecules. On valuation front, ISLL continues to trade a significant discount to its closest peers in the API & CRAMS business as well as broader indices.

Product mix impacts margins in Q4FY11
ISLL's Q4, FY11 operating income at Rs. 305.2 crore grew by a strong 51.6% on YoY basis supported primarily by ramp-up in Menthol business as well as healthy growth in existing API business and new product introductions.

However, despite strong revenue growth, company's EBITDA margins at 14.2% declined sharply by 650bps (on YoY basis) and 280 bps (on QoQ basis) primarily on account of higher than estimated revenues coming in from relatively lower margin, Menthol business. During the end of last financial year, the company scaled-up its menthol business, which skewed the product mix in favour of low-margin business, thus impacting the overall margins As a result of sharp decline in EBITDA margins, company's EBITDA at Rs. 43.3 crore grew by 4.0% compared to a revenue growth of 51.6% during the quarter.

At net level, despite deterioration in operating performance, ISLL reported a PAT of Rs. 26.4 crore, a growth of 27.2% on YoY basis largely on account lower effective tax rate. Due to substantial investments in R&D, ISLL is currently under MAT and claims tax write-back, which could be offset against future tax liabilities.

VALUATION GRADING

In assessing a company's valuation, various parameters are looked at including the company's earnings and growth prospects; its ability to generate free cash flows and its capacity to generate returns from the capital invested. The valuation is also benchmarked against an appropriate peer set or index.  While assessing a company's relative valuation, the historical price volatility exhibited by the stock, besides its liquidity, is also taken into account. The extent of overvaluation or undervaluation is adjusted for the relative volatility displayed by the stock.

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To read the full report click on the attachment