Saral Gyan Hidden Gem - Nov 2015

UNEXPLORED MULTIBAGGER SMALL CAP STOCKS

EQUITY RESEARCH REPORT

CORAL LABORATORIES LTD.

BSE CODE: 524506

Industry: Pharmaceuticals CMP: Rs. 552.50 (06/12/2015)

Market Cap: 197.24 (INR in Crore) Target Price: Rs. 1100 Date: Dec 06, 2015 Time Period: 12 – 24 months

Saral Gyan Capital Services

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HIDDEN GEMS – NOVEMBER 2015

- 2 - SARAL GYAN CAPITAL SERVICES

TABLE OF CONTENT

S.No Content Page No.

1. Company Background 03

2. Recent Developments 06

3. Financial Performance 08

4. Peer Group Comparison 10

5. Key Concerns / Risks 10

6. Saral Gyan Recommendation 11

7. Disclaimer 13



1. Company Background

Coral Laboratories Limited was founded in 1994 and is engaged in pharmaceutical business in India and internationally.

Coral Laboratories Ltd (Coral Labs) is equipped with total three ultra-modern strategically spread manufacturing units located in Daman, Dehradun and Vasai, which are ideal for manufacture of around 400 generic medicines on a significant scale in about 15 dosage forms. Coral Lab is among the many companies with a large scale manufacturing portfolio and expertise. All 3 state of the art manufacturing plants are with CGMP & FDA approvals. The company’s product portfolio is composed of bacteria, biotic, inflammatory and skin condition medicines, as well as protein supplements. It primarily focuses on inflammatory, bacterial, biotic, protein deficiencies, and skin conditions. The company principally offers Zest syrups/caps/drops, Moxbro caps/tabs/dry syrups, and dedoxy/doxycycline capsules. Company produces a variety of drugs like antibiotics, vitamin supplements, protein supplements, iron supplements, antacids, antiulcer medications, antispasmodics, analgesics, antipyretics, antiasthmatics, anthelmentics, antidiabetics, antiamoebic, cough suppressants, expectorant, anticold, cardiac medicines, special cardiac products, herbal medicines, antibacterials, anti-eczematic and anti-fungal, and appetizers. The company also offers oral antiseptic, antimalarial drugs, muscle relaxants, nasal sprays, eye drops, ear drops, eye/ear drops, anti-allergic, calcium preparations, mouthwashes, anti-emetic, antipsychotic drugs, and injectables. The company offers its products in various dosage forms, such as tablets, drops, capsules, dry syrups, liquid orals, inhalers, sprays, and injectables. The company exports its products to countries like Sri Lanka, Myanmar, Cambodia, Vietnam, Jordan, the Philippines, Afghanistan, Kenya, Nigeria, Malawi, Chile, Cuba, Barbados, Jamaica, Ivory Coast, Costa Rica, Lesotho, Papua New Guinea, Malawi, and Hong Kong. Mr. Navin B. Doshi has been overall responsible for the operations and smooth functioning of business of the company successfully and has been instrumental in achieving substantial growth for the company as Director. Mr. Navin B. Doshi, founder of Coral Labs, has over three decades of marketing experience in the pharmaceuticals industry.



Coral Labs has a wide range of drugs to offer from various segments, company offers almost 450 SKUs as Non-Sterile products, 150 as Sterile products and 55 as OTC & Nutraceutical products. Products Range in Antibiotics / Antibacterial Segment

SR NO. PRODUCTS GENERIC NAME & STRENGTH UNIT PACK 1 CLODAX L 250 DT AMOXYCILLIN 125 MG + CLOXACILLIN 125 MG + LACTIC ACID BACILLUS 30 MLN SPR 10x10

2 CLODAX L 500 MG CAPSULES AMOXYCILLIN 250 MG + CLOXACILLIN 250 MG+ LACTIC ACID BACILLUS 60 MLN SPR 10x10

3 CLODAX CLOXACILLIN 250 MG TABLETS 1x1000

4 DECIP 250 MG TABLET VITAMINS WITH TIMED RELEASED IRON CAPSULES 10X10

5 DECIP 500 MG TABLET CIPROFLOXACIN TABLETS BP 500 MG 10X10l

6 CITI TABLETS CIPROFLOXACIN 500 MG + TINIDAZOLE 600MG 25x10

7 CITI H TABLETS CIPROFLOXACIN 250 MG + TINIDAZOLE 300MG 25x10

8 CITI SUSPENSION CIPROFLOXACIN 250 MG + TINIDAZOLE 300 MG 60 ML

9 CITI SUSPENSION CIPROFLOXACIN 125 MG + TINIDAZOLE 150 MG ORAL SUSPENSION 100 ML

10 CILCLOX 500 MG CAPSULES AMPICILLIN 250 MG + CLOXACILLIN 250 MG CAPSULES 10x10

11 CILCLOX 250 DT TABLETS AMPICILLIN 125 MG + CLOXACILLIN 125 MG TABLETS 10x10

12 DEROX KID TABLETS ROXYTHROMYCIN DISPERSIBLE TABLETS 50 MG 10x10

13 DEROX LIQUID ROXITHROMYCIN ORAL SUSPENSION 50MG / 5ML 30 ML

14 DEROX DROPS ROXYTHROMYCIN ORAL SUSPENSION 25MG/ML 10 ML

15 DEDOXYN CAPSULES DOXCYCLINE CAPSULES BP 100MG 30x10

16 DACLOR 250 MG CAPS CHLORAMPHENICOL CAPSULES BP 250 MG 25x10

17 DACLOR 500 MG CAPS CHLORAMPHENICOL CAPSULES BP 500 MG 25x10

18 DEROX 150MG TABLETS ROXYTHROMYCIN TABLETS 150MG 10x10

19 DAX-LA 125 MG DT TABLETS CEFADROXYL 125 MG + PROBENCIDE 125 MG 10x6

20 DAX-LA 250 MG TABLETS CEFADROXYL 250 MG + PROBENCIDE 250 MG 10x6

21 DAX-LA 500 MG TABLETS CEFADROXYL 500 MG + PROBENCIDE 500 MG 10x6

22 DAX-LA SYRUP CEFADROXYL 125 MG + PROBENCIDE 125 MG/5ML 30 ML

23 DAX REDIUSE CEFADROXIL ORAL SUSPENSION 125 MG / 5 ML 1 X 30 ML

24 DAX REDIUSE CEFADROXIL ORAL SUSPENSION 250 MG / 5 ML 1 X 30 ML

25 SPARCOR 200 Each film coated tablet contains SPARFLOXACIN 200 MG 6`s

26 MOXBRO 250 MG CAPSULES AMOXYCILLIN 250 MG + BROMHEXINE 8MG 25x10

27 MOXBRO 500 MG CAPSULES AMOXYCILLIN 500 MG + BROMHEXINE 16MG 25x10

28 MOXBRO KID TABLETS AMOXYCILLIN 125 MG + BROMHEXINE 4MG 10x12

29 MOXBRO 250 MG DT TABLETS AMOXYCILLIN 250 MG + BROMHEXINE 8MG 10x12

30 MOXBRO CAPSULES AMOXYCILLIN 250 MG + BROMHEXINE 8MG 25 X 10

31 MOXBRO DRY SYRUP AMOXYCILLIN 125 MG + BROMHEXINE 4MG DRY SYRUP 60 ML

32 AKTRIM 480 MG TRIMETHOPRIM 80MG + SULPHAMETHOXASOLE 400MG 10 x 10

33 TRIMETHOX 480 MG TABLETS TRIMETHOPRIM 80MG + SULPHAMETHOXASOLE 400MG 50 x 10 / 12 x 10

34 AKTRIM FORTE TRIMETHOPRIM 160MG + SULPHAMETHOXASOLE 800MG 1 X 10

35 TRIMETHOX FORTE TRIMETHOPRIM 160MG + SULPHAMETHOXASOLE 800MG 12 X 10 / 24 X 10

36 COREMYCIN E 250 MG TABLETS ERYTHROMYCIN STEARATE TABLETS BP 250 MG 10x10

37 COREMYCIN E 500 MG TABLETS ERYTHROMYCIN STEARATE TABLETS 500 MG 10x10

38 NORTOP 400 MG TABLETS NORFLOXACIN 400MG 10x10

39 NORTOP T TABLETS NORFLOXACIN 400MG + TINIDAZOLE 600MG 10x10

40 AMPICOR / AMIPEN 250 CAPSULES AMPICILLIN CAPSULES BP 250 MG 1 X 1000

41 AMPICOR / AMIPEN 500 CAPSULES AMPICILLIN CAPSULES BP 500 MG 10x10

42 MOXICOR - 250 AMOXYCILLIN CAPSULES BP 250 MG 1 X 1000 / 10 X 10

43 UMOX 250 MG CAPSULES AMOXYCILLIN CAPSULES BP 250 MG 10 X 100

44 MOXICOR / UMOX 500 MG CAPSULES AMOXYCILLIN CAPSULES BP 500 MG 10x10

45 CORCYCLINE 250 MG CAPSULES TETRACYCLINE CAPSULES BP 250 MG 1 X 10 X 100 / 25 X 10

46 CORCYCLINE 500 MG CAPSULES TETRACYCLINE CAPSULES BP 500 MG 10X10



SR NO. PRODUCT CATEGORY GENERIC NAME & STRENGTH UNIT PACK

47 CORLEX 250 MG CAPSULES CEPHALEXIN 250 MG 10X10

48 CORLEX 500 MG CAPSULES CEPHALEXIN 500 MG 10X10

49 DTO TABLETS OFLOXACIN 200 MG AND ORNIDAZOLE 600 MG TABLETS 10X10

50 AKTRIM SUSPENSION 240 MG / 5 ML TRIMETHOPRIM 40MG + SULPHAMETHAXAZOLE 200 MG 1 x 100 ML

51 F CLODAX CAPSULES FLUCLOXACILLIN CAPSULES 250 MG 1 x 100 ML

52 F CLODAX 500 CAPSULES FLUCLOXACILLIN CAPSULES 500 MG 1 x 100 ML

53 CLODAX D CAPSULES AMOXICILLLIN 250 MG + DICLOXACILLIN 250 MG CAPSULES 1 x 100 ML

54 CLODAX F CAPSULES AMOXICILLIN 250 MG + FLUCLOXACILLIN 250 MG CAPSULES 1 x 100 ML

55 COREMYCIN E SYRUP 125 MG / 5 ML ERYTHROMYCIN ESTOLATE FOR ORAL SUSPENSION USP 125 MG/5ML 1 x 100 ML

56 DACLOR SUSPENSION 50 MG / 5 ML CHLORAMPHENICOL PALMITATE 50MG/5ML 1 x 100 ML

57 MOXICOR SYRUP AMOXYCILLIN ORAL SUSPENSION BP 125 MG/5ML 1 x 100 ML

58 UMOX DRY SYRUP AMOXYCILLIN ORAL SUSPENSION BP 125 MG/5ML 1 x 100 ML

59 CORLEX SYRUP CEPHALEXIN 125 MG/250 MG/5ML 1 x 100 ML

60 AMPICOR SYRUP AMPICILLIN FOR ORAL SUSPENSION BP 125 MG/5ML 1 x 100 ML

61 AMIPEN SYRUP AMPICILLIN FOR ORAL SUSPENSION BP 125 MG/5ML 30 ML

62 CORCEF DRY SYRUP CEFIXIME FOR ORAL SUSPENSION USP 30 ML

63 CORZEE AZITHROMYCIN 250 MG TABLETS 10 x 10

64 UMOX PLUS DT TABLETS AMOXYCILLIN 200 MG + CLAVULANIC ACID 56.5MG TABS

65 UMOX PLUS 375 MG TABLETS AMOXYCILLIN 250 MG + CLAVULANIC ACID 125 MG TABS 10 x 1 x 10

66 UMOX PLUS 625 MG TABLETS AMOXYCILLIN 500 MG + CLAVULANIC ACID 125 MG TABS 10 x 1 x 10

67 UMOX PLUS 1GM TABLETS AMOXYCILLIN 875MG + CLAVULANIC ACID 125 MG TABS

68 UMOX PLUS SUSPENSION AMOXYCILLIN 125 MG + CLAVULANIC ACID 31.25 MG / 5 ML SUSPENSION 1 x 30ML

69 UMOX PLUS SUSPENSION 200 DS AMOXYCILLIN 200 MG + CLAVULANIC ACID 27.5 MG / 5ML SUSPENSION 1 x 60ML

70 MOXICOR C SUSPENSION AMOXICILLIN & CLAVULANATE POTASSIUM FOR ORAL SUSPENSION USP 1 x 60ML

71 GTO TABLETS GATIFLOXACIN 200 MG TABLETS + ORNIDAZOLE 500 MG TABLETS 10 x 10

72 CIPROFLOXACIN TABLETS USP 500 MG CIPROFLOXACIN TABLETS USP 500 MG 10 x 10 / 1 X 1000

73 CORCLAR DRY SYRUP CLARITHROMYCIN FOR ORAL SUSPENSION USP 125 MG / 5ML 1 X 30 ML

74 CORGATE 400 GATIFLOXACIN 400 MG 5`s

75 SPARCOR 400 SPARFLOXACIN 400 MG 6's

76 CORCEF 100 TABLETS CEFIXIME USP (as trihydrate) equivalent to anhydrous CEFIXIME 100 MG 20 x 1 x 10

77 CORCEF DRY SYRUP CEFIXIME FOR ORAL SUSPENSION USP 1 X 30 ML

78 CORCEF 200 TABLETS CEFIXIME USP (as trihydrate) equivalent to anhydrous CEFIXIME 200 MG 20 x 1 x 4

79 DECLAV 100 TABLETS CEFIXIME 100MG + CLAVULANIC ACID 125 MG 10 x 1 x 10

80 DECLAV 200 TABLETS CEFIXIME 200 MG + CLAVULANIC ACID 125 MG 10 x 1 x 10

81 DECLAV SUSPENSION CEFIXIME 50MG + CLAVULANIC ACID 31.25/5ML 1 X 30 ML

82 CORCEFO DRY SYRUP CEFPODOXIME For Oral SUSPENSIONS 50MG/5ML 1 X 30 ML

83 CORCEFO KID TABLETS CEFPODOXIME DISPERSIBLE ORAL TABLETS 10'S

84 CORCEFO-100 CEFPODOXIME PROXETIL USP equivalent to CEFPODOXIME 100 MG 1 x 10

85 CORCEFO-200 CEFPODOXIME PROXETIL USP equivalent to CEFPODOXIME 200 MG 1 x 10

86 CORZIT DRY SYRUP AZITHROMYCIN FOR ORAL SUSPENSION USP 200 MG / 5 ML 1 X 15 ML

87 CORZIT 500 TABS AZITHROMYCIN TABLET 500 MG 1 X 3

88 CORZIT CAPSULES AZITHROMYCIN CAPSULE 250 MG 1 X 6

89 CLARITHROCIN TABLETS CLARITHROMYCIN TABLETS 250 MG 1 X 10

90 NITO TABLETS NITAZOXANIDE 500 MG + OFLOXACIN 200 MG 10 x 10

91 GRISCOR 125 GRISEOFULVIN TABLETS 125 MG 10x10

92 GRISCOR 500 GRISEOFULVIN TABLETS 500 MG 10x10

93 GRISCOR SUSPENSION GRISEOFULVIN Oral SUSPENSION 125 MG /5 ML 100 ML bottle



2. Recent Development Increasing Focus on Exports to drive Revenue growth and Profitability Coral Labs is making continuous efforts to enhance its exports in order to drive revenue growth and profitability. The Company’s export has increased to Rs.31.59 crores in FY15 from previous year of Rs. 25.59 crores registering growth of 23%. In FY15, company’s exports contributed 50.9% of total revenue compared to 49.2% in FY14. With management focus on driving exports in semi regulated markets, we expect revenue from exports will increase significantly during next 2 to 3 years. According to India Ratings, a Fitch company, the Indian pharmaceutical industry is estimated to grow at 20 per cent compound annual growth rate (CAGR) over the next five years. Presently the market size of the pharmaceutical industry in India stands at US$ 20 billion. Branded generics dominate the pharmaceuticals market, constituting nearly 70 to 80 percent of the market. India is the largest provider of generic drugs globally with the Indian generics accounting for 20 per cent of global exports in terms of volume. The domestic generic drug market is expected to cross $27.9 billion from the current level of $13.1 billion registering compound annual growth rate (CAGR) of about 16.3 per cent particularly due to approval accorded by USFDA makers and 21 drugs patent losing patent by 2019, according to a joint study by the Associated Chambers of Commerce and Industry of India (Assocham) and RNCOS. The major export markets for the country’s pharmaceutical products are Americas, Europe, China, Japan, Africa, and others. The U.S. is single largest export destination. It accounts for nearly 28 per cent of Indian pharmaceutical exports, followed by the European Union (18 per cent) and Africa (17 per cent). The pharma exports to the U.S. market are high due to the large number of approvals from the USFDA. According to a study on ‘Generic Medicines in India - Promulgating Growth & Access , Generics would account for 85 per cent share in the domestic pharma market by 2020, fuelled by cheap labour, patent cliff of blockbuster drugs and prevalence of lifestyle diseases. Generic drugs account for 75 per cent of the domestic pharmaceutical market by value. Drugs for cholesterol control, pain management, anti-coagulant, respiratory, liver disorders, depression and lipid regulators are highly prevalent in the global market. As per CARE Ratings, the drug patent expiry in the USA will create new opportunity for Indian pharmaceutical industry in the coming years and the pharma industry will gain a larger foothold in the world's generic market. In the long term, semi-regulated markets like Latin America, Africa and Asia may offer the next growth avenues for Indian pharma companies as these markets have high demand for drugs and relatively less stringent regulatory compliance resulting in lower cost of servicing these markets.



Increase in Share Holding by Promoters During last 5 years, promoters have increase their stake in the company by 10.29%, from 61.28% in Mar’11 to 71.53% in Sep’15.

YEAR FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Sep'15

Promoters Holding 61.28% 65.82% 69.86% 70.73% 71.57% 71.57%

% Increase (YoY) 0.0% 4.54% 4.04% 0.87% 0.84% 0.0% (6M)

During last 15 years, promoters have increased their holding in the company from a meagre 15.05% in 2001 to the respectable 71.57% in 2015. Promoters buying own company's share from the open market is a signal of highest commitment and confidence in the company's business. From above, it is evident that promoters of the company have steadily made purchases via open markets to increase their stake in the company. Promoters buying shares from open market adds comfort in terms of associated downside risk in stock price in case of market correction. At the end of Sep’ 15, promoter shareholding stands at 71.57%. FII and DII investment is nil in the company. Moreover, there has been no equity dilution for the last 15 years, which is very impressive. Company has not made any fresh issuances of equity capital and the equity capital of Coral Labs is same at 3.57 crores since 2001.



3. Financial Performance Coral Laboratories standalone net profit rises 14.06% in the September 2015 quarter Net profit of Coral Laboratories rose 14.06% to Rs 2.84 crore in the quarter ended September 2015 as against Rs 2.49 crore during the previous quarter ended September 2014. Sales rose 24.28% to Rs 18.07 crore in the quarter ended September 2015 as against Rs 14.54 crore during the previous quarter ended September 2014 Coral Laboratories standalone net profit rises 84.67% in the June 2015 quarter Coral Labs standalone net profit rises 84.67% in the June 2015 quarter to Rs 2.77 crore in the quarter ended June 2015 as against Rs 1.5 crore during the previous quarter ended June 2014. Sales rose 21.82% to Rs 13.96 crore in the quarter ended June 2015 as against Rs 11.46 crore during the previous quarter ended June 2014.

1 2 3 4 5 6

Net Sales 11.46 14.54 13.55 17.94 13.96 18.07

Net Profit 1.5 2.49 2.95 2.63 2.77 2.84

11.46

14.54 13.55

17.94

13.96

18.07

1.5 2.49 2.95 2.63 2.77 2.84

0

2

4

6

8

10

12

14

16

18

20

Rs in

Cro

res

Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15

Last 6 Quarters Net Sales & Profit



Current & Expected Earnings Quarterly Ended Profit & Loss Account

In FY 14-15, company export sales grew by 23% compared to last financial year and contributed 50.9% of total revenue compared to 49.2% in FY14. As per our estimates, company export contribution will increase to 55% over next 2 years. Company has delivered steady growth over last couple of years with continuous improvement in margins. With management increased thrust on exports, we expect company will continue to achieve robust top line and bottom line growth going forward.

Particulars (Rs in Crores)

Dec 2014

Mar 2015

Jun 2015

Sep 2015

Dec 2015 E

Mar 2016 E

Audited / UnAudited UA UA UA UA UA UA

Net Sales 13.55 17.94 13.96 18.07 17.13 21.97

Other Operating Income 0.25 0.72 1.18 0.1 0.21 0.41

Total Income - Operations 13.79 18.66 15.14 18.18 17.34 22.38

Raw Materials Consumed 8.38 9.38 9.45 10.36 9.67 11.55

Purchase of Traded Goods -- 0.45 -- -- -- --

Increase/Decrease in Stocks -0.76 0.73 -0.96 0.66 -0.45 0.51

Power & Fuel -- -- -- -- -- --

Employees Cost 1.13 1.16 1.08 1.09 1.31 1.32

Depreciation 0.38 1.41 0.48 0.48 0.48 1.50

Provisions And Contingencies -- -- -- -- -- --

Other Expenses 1.65 2.77 2.04 2.47 1.82 3.09

P/L Before Other Income 3.01 2.74 3.04 3.12 4.51 4.41

Other Income 0.55 0.81 0.45 0.48 0.31 0.51

P/L Before Int., E. Items & Tax 3.56 3.55 3.49 3.6 4.82 4.92

Interest 0.01 0.01 0.01 0.05 0.05 0.05

P/L Before E. Items & Tax 3.56 3.54 3.49 3.55 4.77 4.87

Exceptional Items -- -- -- -- -- --

P/L Before Tax 3.56 3.54 3.49 3.55 4.77 4.87

Tax 0.61 0.91 0.72 0.71 0.94 1.23

P/L After Tax – Ord. Activities 2.95 2.63 2.77 2.84 3.83 3.64

Extra Ordinary Items -- -- -- -- -- --

Net Profit/(Loss) 2.95 2.63 2.77 2.84 3.83 3.64

Equity Share Capital 3.57 3.57 3.57 3.57 3.57 3.57

Calculated EPS 8.25 7.35 7.75 7.96 10.73 10.20

Calculated EPS (Annualised) 33 29.4 31 31.84 42.92 40.80

No Of Public Shares Holding 0.1 0.1 0.1 0.1 NA NA

Public Share Holding (%) 28.43 28.43 28.43 28.43 NA NA



4. Peer Group Comparison

PEER GROUP CORAL

LABORATORIES NATURAL CAPSULES

ALPA LABORATORIES

VENUS REMEDIES

CMP 552.50 159.20 79.15 133.20

52 W L/H 162.00/603.00 61.65/167.90 10.50/79.15 96.10/241.15

Market Cap 197.39 92.22 166.54 152.41

Results (in Crores) Sep-15 Sep-15 Sep-15 Sep-15

Sales 18.07 16.75 12.33 100.87

PAT 2.84 1.55 5.87 1.61

Equity 3.57 5.79 21.04 11.44

EPS (TTM) 31.32 10.15 3.74 -14.62

P/E 17.64 15.68 21.16 0.00

5. Key Concerns / Risks Coral Lab is present in the generics segment of pharmaceutical markets in different

countries. Presence of many players in the industry and offerings of cheap generic products from unorganized sector is always a risk for the company.

Coral Lab exports its Generic drugs to various countries like Sri Lanka, Myanmar,

Cambodia, Vietnam, Jordan, the Philippines, Afghanistan, Kenya, Nigeria, Malawi, Chile, Cuba, Barbados, Jamaica, Ivory Coast, Costa Rica, Lesotho, Papua New Guinea, Malawi, and Hong Kong , the governments of different countries apply periodic price cuts on the pharmaceutical products so as to keep the healthcare cost under control which can impact the margins of the company.

Stringent regulations and quality standards are prescribed by the regulatory

authorities across the globe for the pharmaceutical products and their manufacturing and supply chain processes in order to protect the interests of the patients. Any deviation from the prescribed regulations or any variation in the quality from the prescribed standards may lead to punitive actions by the regulatory authorities.



6. Saral Gyan Recommendation

Coral Labs is having more than 2 decades of experience and offers whole array of products which are decent on margins. As company exports to semi / less regulated markets and do not supply to the US, company does not have risk associated with USFDA stringent norms and regulations. Company has shown consistency in revenue growth with strong margins in recent years. With increased focus of management on exports in semi regulated markets, we expect net sales and PAT of the company to grow at CAGR of 20% and 26% respectively during next 2 years.

The governments of various countries have been taking several cost effective measures in order to bring down healthcare expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will benefit Indian pharma companies. Coral Labs is among the many companies with a large scale manufacturing portfolio and expertise to offer generic drugs in different therapeutic segments.

Company has 3 state of the art plants with CGMP & FDA approvals. Company has

demonstrated healthy domestic growth as well in the past. In India, company is doing well in the western and southern part. Company has complete portfolio of injectable, syrups, cough syrups and tablets in antibacterial, antibiotics segment and sells its products over the counter and on prescriptions. Company manufacture around 400 generic medicines on a significant scale in about 15 dosage forms.

Company’s ROCE and PAT margins have seen continuous improvement over last 5

years and expected to further improve going forward considering robust revenue growth from exports as well as domestic markets. We believe Coral Labs is getting into a trajectory where business growth would be even faster. Company has achieved revenue CAGR of 11.8% and profit CAGR of 15.43% during last 5 years. Moreover, company is virtually debt free.

Key Financial Parameters Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015

Return on Equity (%) 13.22 15.11 14.04 16.67 16.45

ROCE (%) 12.96 15.32 14.15 16.69 16.41

Operating Profit Margin (%) 18.52 18.97 18.19 19.87 20.75

Net Profit Margin (%) 12.67 13.47 13.81 15.44 15.18

Debt to Equity (%) 0 0 0.01 0 0.02

Working Capital Days 185 174 229 224 235

Promoters have increased their stake in the company by 5.75% in last 3 years which

gives further confidence in terms of company’s future growth prospects. As of Sept’15, promoter’s shareholding is 71.57% without pledging any shares. FII and DII shareholding in the company is nil.



Management has rewarded shareholders by paying consistent dividend since last 13

years. For last financial year, company has paid dividend of Rs. 2.50 per share and dividend yield at current market price is 0.45%. With expected increase in revenue and profitability in coming years, we believe company dividend payout will increase going forward.

YEAR Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

EPS 12.46 16.24 16.87 22.02 26.79

Dividend / Share (In Rs) 1.50 1.50 1.50 2.00 2.50

As per our estimates, Coral Labs can deliver PAT of 17 crores for full financial year

2016-17, annualized EPS of Rs 47.6 with forward P/E ratio of 11.6X for FY16-17. Company’s valuation looks attractive compared to other pharmaceutical companies operating in the same segment. Moreover, Coral Labs can continue to deliver consistent revenue growth with strong margins during next 2 years.

On equity of Rs. 3.57 crore, the estimated annualized EPS for FY 16-17 works out to Rs. 47.6 and the Book Value per share is Rs. 181.2. At current market price of Rs. 552.50, stock price to book value is 3.05.

Considering company’s steady growth with strong margins in past, increased thrust of management on exports in semi-regulated markets and strong earning visibility with robust business prospects, Saral Gyan team recommends “Buy” on Coral Laboratories Ltd at current market price of Rs. 552.50 for target of Rs. 1100 over a period of 12 to 24 months. Buying Strategy:

70% at current market price of 552.50 30% at price range of 450 - 470 (in case of correction in stock price in near term)

Portfolio Allocation: 3% of your equity portfolio.



7. Disclaimer Important Notice: Saral Gyan Capital Services is an Independent Equity Research Company.

© SARAL GYAN CAPITAL SERVICES

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:

a. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report

b. Neither Saral Gyan, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.

c. Neither Saral Gyan, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company

d. Neither Saral Gyan, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.

DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:

a. Neither Saral Gyan nor it's Associates have received any compensation from the subject company in the past twelve months.

b. Neither Saral Gyan nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.

c. Neither Saral Gyan nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

d. Neither Saral Gyan nor it's Associates have received any compensation for products or services from the subject company.

e. Neither Saral Gyan nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.

GENERAL DISCLOSURES:

a. The Research Analyst has not served as an officer, director or employee of the subject company. b. Saral Gyan or the Research Analyst has not been engaged in market making activity for the subject company.

Definitions of Terms Used:

a. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.

b. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.

c. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.

d. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.

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Saral Gyan Hidden Gem - Nov 2015

Economy & Finance

Transcript of Saral Gyan Hidden Gem - Nov 2015