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Carol Info Services: Attractive valuations


posted by ATUL GUPTA on Sunday, October 25th, 2009


Business Outlook: 

The primary activities of CAROL INFO SERVICES are contract manufacturing and renting of immovable property. The Company provides contract manufacturing services for nutraceutical and milk-based products. Contract manufacturing in India is growing rapidly catering to both domestic and international pharmaceutical companies. The Company’s plant in Lalru, Punjab is well placed to meet this need. It is operating near to full capacity, and will continue to do so in the foreseeable future. The Company is also engaged in renting of immovable property activity. The property portfolio, although a non-core activity, generates substantial income. Many global pharmaceutical majors are looking to outsource manufacturing from Indian companies, which enjoy much lower costs (both capital and recurring) than their western counterparts. India's attractiveness as a global location for both pharma contract services and as a place to set up operations can also be attributed to the growing pool of skilled professionals in this sector, as well as low cost base, providing firms with increased competitiveness and profitability.

 

Contract manufacturing is work sub-contracted to a manufacturer by a company that owns the product design and IPR. In some cases, the manufacturer takes the responsibility of marketing the products using the vendor’s brand and provides after-sales support. The contract manufacturing market in India is set to register 40% growth on yearly basis and likely to attain US$ 2.46 billion by the end of 2010 from US$ 869 million in 2007 (Source: KPMG report). The Indian nutraceutical market is about US$ 600 million is expected to grow at approximately 20%. Though nutraceuticals in India are considered drugs, unlike the over-the-counter status they have in western countries, the industry estimates global sales to reach $190 billion by 2010. The Infant formulae and follow-on segment, Weaning Cereals and Protein Supplements market are expanding rapidly. Increasing awareness and rising disposable incomes is leading growth of this market.

 

The manufacturing unit at Lalru has been established for more than ten years now and it is necessary to make additional investment in the said facility for expansion and upgradation. Considering that the margins in the contract manufacturing business are not expanding, management is exploring various options regarding the business. The need of the industry is to have an empowered body that will enforce strict regulations on companies but allow them to bypass the medical channels. Currently, Pharma companies have to approach doctors to promote their products. Industry sources also feel that OTC status might be better to boost the segment rather than a drug status, as people associate drugs with curative measures rather than preventive ones.

 

Valuations:

At CMP of 58, current PE is 8.7 and its current Price to book value ratios of .46 makes it an attaractive buy in current market with over priced securities.

posted by ATUL GUPTA on Sunday, October 25th, 2009


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