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Vivimed Labs is a Hyderabad based manufacturer focused on pharmaceutical and speciality chemical sector. Company has 11 manufacturing plants (eight domestic and three overseas) across three continents. The healthcare vertical is engaged in the custom manufacturing, APIs and formulations for leading generics-manufacturing companies. The specialty chemicals segment produces active ingredients for a range of home, personal care and industrial products. In our recent interaction, management sounded optimistic about pharma driven revenue growth and maintaining lighter balance sheet.

Devlopment Growth:

Divestment to deleverage and refocus

In FY16, Vivimed divested a part of its Specialty Chemical business (comprising Home and Personal Care segments) to Clariant India for consideration of INR 3.25bn. This divestment was to reduce debt and to refocus on pharma and speciality chemical segments. With this divestment, Vivimed plans to focus on growing Pharmaceutical API, CMO and Finished Dosage formulations businesses in regulated markets. In speciality chemicals, company has retained niche business like photochromic, imaging chemicals, anti-microbial, hair colour etc. to drive growth and profitability. Divested product lines had a revenue of INR 1,450 mn with an EBIDTA margin of 20%. Vivimed has managed to reduce net debt from INR 9850 mn in FY15 to INR 8075 mn in H1FY17 and further decline is expected till INR 7000 mn by Q4FY17. Vivimed also sold branded ophthalmic formulations business (KlarSehenPvt ltd) for consideration of INR 730 mn in H1FY17 which will further help in debt reduction.

Performance highlights:.

Sector Line:

Pharmaceutical segment

Company manufactures APIs and formulations across diverse therapeutic segments and has a strong marketing presence across regulated and emerging markets. Vivimed partners with leading global pharmaceutical companies for custom manufacturing (CMO) assignments for APIs and generic formulations. It is associated with companies like Novartis, CIPLA, Wockhardt etc. and ~55-60% manufacturing capacity is used for contract manufacturing (gets fixed margins). Company is planning to reduce exposure of CMO (currently ~30% of pharma revenue; EBITDAM 16-18%) and focus on high margin API/formulation business.

Company manufactures APIs across 15+ therapeutic segments from three facilities (in Spain and Mexico). Anti-ulcer is a key therapeutic segment followed by anthelmintic, antidepressants, anti-infectives, anti-HIV etc. Company has relationships with 100+ customers across 70 countries and has filed 50+ DMFs with the USFDA and 150+ active DMFs worldwide. Vivimed has received ANDA for five products in US and it has commercialized 4 products namely Losartan, Donepezil, Amlodipine and Metronidazole. With increasing ANDA product launches, Alathur capacity utilization is expected to jump ~55-60% by FY18 vizaviz current ~35% utilization. In spite of competitive market, management expects steady (10- 15%) growth from formulation business. Vivimed plans to focus on molecules going off patent in FY18-19 and has 5-6 molecules in pipeline which will be commercialized in next 2-3 years.

Speciality Chemicals

The company had two facilities for Speciality Chemicals, Hyderabad and Bidar, of which Hyderabad facility will be transferred to Clariant post the sale of a portion of a speciality chemical business. Company has retained niche business like photochromic, imaging chemicals, anti-microbial, hair colour etc. Vivimed is in advanced talks with Japanese client for supplying key photochromic products. Company expects significant revenue contribution from photochromic with premium margins (~45-50%) in coming years. Vivimed has long standing relationships with companies like P&G, L'Oreal, Johnson& Johnson etc. for hair dyes and microbial segment. Company is working on complete range of photochromic products and other hair/shampoo related products to expand product/consumer base in coming years.

Highlights the fact:

1)Company has 11 manufacturing plants (eight domestic and three overseas) across three continents.

2)In speciality chemicals, company has retained niche business like photochromic, imaging chemicals, anti-microbial, hair colour etc. to drive growth and profitability.

3)Company is planning to reduce exposure of CMO (currently ~30% of pharma revenue; EBITDAM 16-18%) and focus on high margin API/formulation business.

4)Vivimed has received ANDA for five products in US and it has commercialized 4 products namely Losartan, Donepezil, Amlodipine and Metronidazole.

5)Vivimed plans to focus on molecules going off patent in FY18-19 and has 5-6 molecules in pipeline which will be commercialized in next 2-3 years.

Technically View:

The stock is currently trading above 50 days and 100 days, moving average that is all about good bullish& uptrend signal on daily base. RSI &MFI is present at 66 and 74respectivally, which is sideways& showing the uptrend formation for the short term period. The stock is currently in uptrend and now someupside is expecting with major support is found 90level. MACD line is greaterthen signal line 10 day Avg Volume is very high.