Broker optimistic about Poly Medicure

Broking house, Emkay Share and Stock Brokers is bullish on Poly Medicure . It has recommended 'buy rating' on the company.

The report by Emkay Share and Stock Brokers says about key points about the company, these are below: -

Consistent growth driven by capacity additions

"Revenues over the last five years (FY2000-05) have grown at a CAGR of 45% with regular capacity expansions. In last two years, capacity has been increased by 140% to 120   million pieces, which will be increased to 136   million pieces by FY06 end. Within these capacities, blood bag capacity will be doubled to 2   million bags. Revenues of the company are expected to grow by 21% in FY06 to Rs 779   million and 25% in FY07 to Rs 975   million."

Exports continue to drive sales; domestic focus to pick up

"Exports of the company have been the driving force, contributing more than 2/3rd of revenues since inception. Exports (fob) were up 47% to Rs 491 million in FY05 accounting for 74% of gross sales in FY05. Exports are expected to continue to grow at a strong pace; however, the company is increasing its focus on domestic sales, as demand from hospitals and clinics for high quality medical disposables are increasing. Domestic sales are expected to increase in FY06 by 30%. This will reduce the forex risk."

Strong operating cash flows

"Consistent growth in earnings has kept the operating cash flows of the company healthy, which in turn funded the regular capacity increases with low debt infusion. Operating cash flows have increased by 21% over the last two years and are expected to grow at 23% over FY05-07. Cash flows could have been stronger, but for large capex this year. Company is setting up Rs 60 million automatic assembling plant, which will improve productivity and reduce wastage and dependence on labor in the longer term."

Modern facilities and experienced personnel aid product development

"Polymed's main strength is its well-trained and technically competent personnel, led by the promoters. Its ultra modern manufacturing facilities span over an area of more than 100,000 sq ft and a tool room with CNC machine supports the production processes. At present the company has 40 products and expects to introduce 3-4 new products in the next 2-3 years. Polymed expects business from its new products to grow considerably in future."

Investment in Egypt

"In FY04, Polymed invested Rs 3.3 million in Ultra for Medical Products, UMIC SAE, Egypt for setting up production facilities for manufacture of medical disposables to be sold in regions around Egypt. In FY05, Polymed increased its investment in this company to Rs 8.75 million, and currently has a 23% stake in this Egyptian venture. Production in this venture started 18 months back and it has started making cash profits."

However, the report also mentioned some concerns, these are below:

Raw Material Prices

"Major raw materials for the company are plastic grannuals, PVC rigid films and IV components. As a good share of raw materials is petro derivatives, any increase in crude prices can adversely affect margins of the company."

Rupee appreciation

"Since exports account for major part of revenues, any appreciation of rupee affects the earnings of the company adversely. However, as 65% of the raw materials are imported, this provides the company with a natural hedge to a certain degree."

About the company's valuations, the report says, "RoCE and RoE of the company have been around 30% over the last couple of years, due to high asset turnover, strong operating margins and internal accruals infusion for capacity expansions. With the planned expansion also, we expect the return ratios to remain strong over FY05-07; RoCE 25% and RoE of 32% for FY0E. Considering, strong cash flows and high return ratios, valuations look attractive for long term investment. We recommend Buy."

About the company's itself, the report says,

"Polymedicure was promoted in 1995 by Mr J K Baid, Mr Himanshu Baid, Mr B R Mehta and Mr. Rishi Baid for manufacturing medical disposables for selling the same in exports and domestic markets. The company came out with a public issue of 22,50,000 equity shares in March 96 and started commercial production by April 97 with an installed capacity of Medical Disposables (16.5 million pieces) and Cold/Hot Therapy Packs (0.5 million pieces). Over the years, it has grown into one of the most dynamically versatile manufacturers of disposable healthcare products in the region with over 40 different products."

"At present company have 5 plots, covering an area of 3.25 acre, in Ballabgarh, Haryana for manufacturing and administrative facilities. In FY05, Polymed set up a 100% EOU, which recorded a turnover of Rs 150 million."