Buy Vivimed Labs; target of Rs 443: Karvy

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26 Aug, 2025 12:21

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Kary Research Report on Vivimed LabsStrengthening balance sheet and trickle down to P&L: Vivimed Labs has morphed into a Pharma led company, built on its strong base in speciality chemicals. The company now operates across API, Research and Formulations assets acquired in last 4 years, which has tested the balance sheet. The company has sold 30% of its speciality chemicals (Spchem) segment for Rs.3800 Mn, which will be utilized to pare down the debt. In the next phase, we expect de-levered balance sheet and increasing bottom line contribution from pharmaceutical investments to strengthen its earnings base. Scaling up formulations: The formulations, g-Losartan has had more than a year of exposure in US markets, while g-Donepezil had close to half in the US which combined address a market of US$ 700 Mn in USA. The company plans to introduce the remaining three formulations in US by FY16E which we expect will contribute to 7-10% of the total revenues by FY17E.API performance impacted by Euro decline: With Uquifa in Europe, the rupee- Euro appreciation has masked the constant currency growth in this division. With close to 5 quarters of YoY rupee growth and lowering magnitude of the same any status quo in currency movement should reflect the strong growth in CMO division from Uquifa and the increasing filings and registration in API segment.Significant capacity scope: Capacity utilization in Alathur facility is below 20-30% and the 3 API facilities operate at 70-80%. The Hyderabad Spchem facility will be transferred and the company is confident of the upgraded Bidar facility to serve the remaining Spchem segment. The company has acquired facilities and can look forward to a period of increasing realizations from the same. From a period of asset accumulation to maximization of returns from the same, we expect the asset turnover ratio to improve from 1.5x to 2.4x in FY18E.Outlook and ValuationThe company has been traded in a range of 2-10.5x its trailing EPS in the period FY11-15. In the last one year, the company has traded at an average TTM PE of 7.5x, as the sales growth coupled with improved financial costs are being built into expectations. We are valuing the company based on average one year forward PE +1 standard deviation. We are valuing Vivimed at 7.5x its FY18E EPS of +Rs.59.1 for a target price of Rs.443. We are initiating coverage of Vivimed Labs with a “BUY” recommendation and an upside of 22% to current market price.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions

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