Shipa Medicare reported an 85 lakh net profit.

Shipa Medicare has reported a total income of Rs. 269.2583 crores during the period ended June 30, 2022 as compared to Rs. 346.0867 crores during the period ended March 31, 2022. The company has posted a net profit or (loss) of Rs. 0.8485 crores for the period ended June 30, 2022 as against a net profit or (loss) of Rs. 29.5490 crores for the period ended March 31, 2022. Gross margins declined in Q1FY23 due to pricing pressures in both the API and formulation segments.

First domestic player to launch Adalimumab :

To improve cost efficiencies and improve margin profile, the company is working on process changes, backward integration of intermediates, and increasing the scale of operations.In the API business, the company intends to continue its focus on oncology molecules while reducing its dependence on niche non-onco molecules. Shilpa has set up a dedicated block which includes R&D and production blocks. It intends to complete 6 molecules, 2 in FY23 and 4 in FY24, for the exhibit batches. The company is working on specialised polymers and believes there is enough opportunity to grow in the segment. Management expects phase-1 studies to start by CY22-end and complete them in 9 months. Shilpa has been able to stabilise the product for 1 kL. The molecule will start with the grade market, which has small potential, and then move towards formulations. Shilpa intends to give some time for the business to stabilise before looking at an IPO. Shilpa has largely completed the remediation of the Jadcherla formulations unit. Third-party audits of the plant have also concluded without any data integrity issues. Company is constantly in touch with the USFDA with regular updates. On approval, Shilpa is expected to become the first domestic company to launch high-concentration Adalimumab. Given the studies were conducted in the EU, the company intends to pursue launches in the RoW market. The domestic market size for the molecule is Rs. Certain expenses have been capitalised, which will impact P&L, but they are not significant. Capex: Rs 4 billion was earmarked for the Albumin project, of which Rs 1.2 billion has been utilised. Apart from maintenance, there is no major capex for the formulations plant. The Capex for the API business will depend on capacities and the management expects an expense of  Rs400mn-500mn.

The company does not plan more investments in biologics. Onco and other API segments witnessed one-offs during Q1FY23 on account of Ind-Asu requirements and trading revenues, respectively. We believe performance will remain steady going forward, with the USFDA resolution remaining the key to faster growth. Key upside risks are early resolution of the import alert, high-value launches in formulations, and quick success in biosimilars.

Valuations:

EPS is at Rs. 0.10 for the June quarter as compared to Rs. 3.40 in the March quarter and Rs. 0.2 in the June 2021 quarter. The ROCE and ROE are at 5.58% and 3.35%, respectively. The EBITDA stood at 19.2x while the price to book ratio was at 1.81x. The stock was trading at a P/E ratio of 62.0x. The scrip was at Rs.388 on Thursday, up by 0.90%.