Gujarat Themis Biosyn ltd was incorporated in 1981. The Company entered into Technical & Financial collaboration with Yuhan Corporation, South Korea. With Yuhan’s know-how, Gujarat Themis became India’s first Company to start commercial production of the Anti-tuberculosis drug Rifampicin.
Gujarat Themis Biosyn Ltd produces biotech and synthetic products. The Company is manufacturing Rifamycin S, which is an intermediate for manufacturing the drug Rifampicin (an antibiotic used for the treatment of several types of bacterial infections, including tuberculosis, Mycobacterium avium complex, leprosy, and Legionnaires’ disease) and Rifamycin, which is an intermediate for manufacturing the drug Rifaximin (this is an antibiotic used for the treatment of traveler’s diarrhea, irritable bowel syndrome, and hepatic encephalopathy). The company exports its products to the United States and Europe.
Gujarat Themis is among the very few companies in India that have expertise in the field of fermentation. The country’s needs are largely met through imports. Gujarat Themis is continuously identifying fermentation-based products which have good domestic and export potential. The Company is also focusing on R&D for technological developments for new product development. With such capacities in place, Gujarat Themis is in a good position to capitalize on the significant growth opportunities in this sector going forward.
Industry analysis:
The Indian pharmaceutical industry ranks third globally for pharmaceutical production by volume and 14th by value. The Indian pharmaceutical sector is forecast to grow at a CAGR of 22.4% in the near future, and reach $130 billion by 2030. Medicine spending in India is also forecast to rise 9–12% over the next five years, leading India to become one of the top 10 countries in terms of medical spending. In line with this, the Active Pharmaceutical ingredient (API) market is witnessing steady growth in volumes and value worldwide. The global API market is expected to grow on the back of rising drug R&D, increasing incidence of chronic diseases, the rising importance of generics, and higher uptake of biopharmaceuticals.
The Indian government has announced incentives in support of developing the Indian pharmaceutical industry. For instance, in June 2021, the Finance Minister announced an outlay of ₹ 197,000 crores ( $26,578.3 million) that will be utilized over five years for the pharmaceutical PLI scheme in 13 key sectors such as active pharmaceutical ingredients, drug intermediaries, and critical starting materials.
Tuberculosis in India:
Tuberculosis in India is a major health problem, it is estimated to cause around 220,000 deaths every year. Tuberculosis cases are quite high across the world and more than 26% are from India and India amounts for 31% of childhood Tuberculosis. In 2021, India reported a 19% rise in Tuberculosis cases. According to National Tuberculosis Institute, more than 40% of the Indian population carries Tuberculosis infection but only 10% get TB disease and it is the main cause of infertility in India. It is a highly infectious disease and can even result in death if not treated in a timely manner.
Skin in the game:
We normally tend to quantify when it comes to analyzing a company and we lose sight of the fact that it boils down to the people. It’s not necessarily about the P/E ratio or the historic earnings growth necessarily.
The promoters own 74.99% of the total outstanding shares in Gujarat Themis. Whereas, none of the competitors own this level of promoter shareholding. Only Divis Labs Ltd (51.94%) and Sun Pharma Ltd (54.48%) come closer.
Financial moat:
No Debt: The company continues to not have any long-term borrowing obligation, showing confidence in sustained cash flow and profit margin.
Book value per share (BVPS): Increase in BVPS shows the company's ability to efficiently reinvest the profits. The company increased its BVPS steadily and showed a 47.71% yoy return.
Return on research capital (RORC): RORC is calculated by dividing the current year's gross profit by the previous year's total R&D expenditure. It indicates the financial return a company manages to extract from its R&D expense. The company increased its RORC through the 5-year period and had a substantial rise in 2019–20 due to its change in the business model.
Growth, growth, and more growth: Multi-bagger stocks have one thing in common and that is growth. Top-line growth is pivotal for staying ahead of the competition and the long-term growth of the company. Just top-line growth is not the end for the growth of the company and its stock price, a combination of rising sales, EPS, margins, and ROCE are primarily required to make a multi-bagger.
Sales: The company grew its revenue constantly in past 5 years. FY 2019–20 saw a significant rise due to a shift in the business model. The company started to manufacture and sales model instead of manufacturing products through contract manufacturing. Also, the company commercialized the production of Rifamycin with the help of technical input from Themis.
Earning per share (EPS): The company has shown significant improvement in EPS from FY 2019–20. EPS growth along with sales growth is the twin-engine for multi-bagger stock performance.
Return on capital employed (ROCE): ROCE is used to assess a company’s capital efficiency and profitability. The company has a good 5-year ROCE performance with almost no debt. This indicates that the company has good margins and efficient capital allocation abilities. It is a good practice to look at ROCE to keep in check with stock performance rather than volatile stock prices.
Stock performance: The company had an outstanding stock performance over the past 5 years. Especially, after the company changed its business model in September 2019. The stock was a 17 bagger in 2 years, from September 2019 to September 2021. The P/E ratio rose from 8.3x in September 2019 to 23.3x in September 2021.
Conclusion:
Although the stock had risen at a rapid pace in the past 5 years its TTM P/E ratio is 15.47x and the Market cap is ₹886 crores. These numbers are still significantly lower than its competitors and there is more room for growth, provided the company keeps improving its top-line and earnings growth. Moreover, the company has an international market for its products, less competition in its expertise, no debt, has not had any recent drug recalls and its promoters still own a significant share of the company. All these scream a buy recommendation but currently, the market is still overvalued. So, Gujarat Themis is a great stock to be on your watchlist.
Other important financial data:
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