VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

VIVIMEDLABSLTD(VLL)INITIATINGCOVERAGE(NOTRATED)
VivimedLabsLtd(VLL)isaleadingmanufacturerandexporterofspecialtychemicalsmainlyusedin
the personal care and pharmaceutical industries. The companys prime focus is on the home and
personal care (H&PC) segment (covering oral care, sun care, skin care, hair care, preservatives, and
antiageingmolecule.IthasasupplychainrelationshipwithgloballeaderssuchasUnilever,LOreal,
Procter&Gamble,andJohnson&Johnson.Withamanufacturingbaseacross6locationsworldover,
thecompanyhasanemployeebaseofnearly800employees.
NewProductLaunchestofuelgrowth
VLLskeythrustareaisdevelopmentofnewskincareandsuncareproducts.Thecompanyplansto
developmarketforvivinol(4nbutylresorcinol)andetone(ethylhexyltriazone).Italsohasfirmplans
tointroduceSAP(sodiumascorbylphosphate)asanewproduct.Vivimedhasreceivedadditionalnew
productapprovalsfromexistingglobalcustomerswithintheH&PCindustry.
Capacityexpansionstoleadthegrowthcharter
VLLintendstoexpandcapacitiesofexistingproductsforbothSpecialtychemicalsandPharmaceutical
businesssegments.ThecompanysforthcomingproductlauncheswillbeintheSkincare,Sunscreen
and Antimicrobial segments. The capacities are expected to be commissioned in the next 1218
monthsandwilladdtorevenuesfromQ4FY13onwards.
ThecompanyhasalsoshownimpressiveperformanceinthefirstquarterofFY12clockingrevenueof
Rs 120.5 cr, a 42% growth over the same quarter last year. Operating profit margin (EBITDA) for
Q1FY12isslightlylowerat20.4%vs.20.7%duringthesameperiodlastyear.Q1FY12netprofitisup
26.3%(YoY)atRs12.4crvs.Rs9.8crlastyear.Thecurrentyearhasseenasurgeininterestcostsand
FundRaisingtohelpchartthegrowthtrajectory
VLLisraisingRs34cr($7.5mn)fromInternationalFinanceCorporation(IFC)viaissueofforeign
currencyconvertiblebonds(FCCBs).Thecompanyhasplanstogetfundingofupto$20mnfromthe
privateinvestmentarmofWorldBank.Thesefundswillbeusedforcapexof$42mntoexpand
existingfacilitiesatBidar(Karnataka)andBonthapally(AndhraPradesh)andforboththegreenfield
projectsinAndhraPradeshatChoutuppalandatSEZinSrikakulam.TheSrikakulamprojectwillhelpto
enhanceresourceefficiencyforVLL.
Valuation
VLLiscurrentlyquoting~Rs267amultipleof5.6xconsolidatedFY11EPSofRs48.
KEYFINANCIALS
(Consol.Rs.Mn)
Operatingincome
EBITDA
Adj.Netincome
Adj.EPSRs
EPSgrowth(%)
P/E(x)
RoCE(%)
RoE(%)
EV/EBITDA(x)

FY09
2,761
450
194
19.0
18.9
7.5
12.6
21.2
8.7

FY10
3,435
631
310
30.5
60.2
8.6
18.4
25.8
7.2

FY11
4,160
841
488
48.0
57.5
5.6
17.5
29.8
5.3

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

VLLsBusinessDivisions

Oral
Care
Preser
vatives

Sun
Care

H&PC
Division

Skin
Care

Hair
Care

H&PCDivisionsegments

Triclosan

Chlorop
henesin

CaGP

Pharma
Ingredients

NDGA

AVIS

ActivePharmaceuticalIngredientsProducts

ActivePharmaceuticalIngredientsProductsinclude:

(i)
(ii)
(iii)
(iv)
(v)

AVIS,aneffectivesunscreenchemicalusedinbodycreamsandlotions
NDGA,anewantioxidantdevelopedbythecompanythatfindsuseinthecosmeticsand
thefoodandbeverageindustries
CaGP,usedinoralcareformulationsforprotectingthedentalenamel
Triclosan,anantibacterialdrugusedintoothpastesandsoaps
Chlorophenesinanantifungalpreservativeusedincosmetics,foodstuffsandfibres

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

INVESTMENTPOSITIVES

Productsusedingrowingsectors

VLLs has two main divisions, viz., H&PC that produces synthetic organic chemicals in oral care, sun
care, skin care and hair care items and preservatives, and Specialty Pharmaceuticals division that is
focused on drug delivery and discovery, with focus on providing cures for cancer, arthritis, macular
degeneration, psoriasis, Syndrome X and stress. H&PC segment has been instrumental in providing
internationalreputeandvisibilitytothecompanyandhasalsodrivengrowth.

StrongClientRelationships

VLLs has focused on building strong relationships with topnotch global brands such as Unilever,
LOreal,Proctor&GambleandJohnson&Johnson.Itisanapprovedsuppliertotheseglobalpersonal
care majors and has been extremely cautious on maintaining quality norms and withstood client
competition. This has also led to a higher entry barrier for competitors. VLL has not only started
supplyingmultipleproductstothesecompaniesoverthepastfewyears,butalsomanagedalarger
pieofrevenuesfromthesamecustomer.

FocusonbetterR&Dfacilities

VLLisfocusedonR&Dasakeygrowthdriverforitsfuturegrowth.ItsinnovationhashelpedVLLin
expandingitsrelationshipswithexistingcustomersmanifold.VLLsUKbasedR&Dteamisworkingon
developmentofnovelchemicalsforapplicationwithinprintableelectronicsindustry,partofUK
governmentfundedproject.

PRODUCTSOFVIVIMEDSHOME&PERSONALCAREBUSINESS

o OralCare:

VIV20,VIVCALG,VIVHEX,VIVHEX6

o SunCare:

AVIS,BEN3,BEN4,CINNAMON,OCTYNEB,ETONE

o SkinCare:

VIVINOL,VINTOX,TRUALOE,CVITE

o HairCare:

DANTUFFC,DANTUFFZ,DANTUFFK,VIPIROX,VIVIDINE,COGUAR113

o Preservatives: COSVAT,VIVILIDE,VIVMAX,VIV20

VLLhasalargenumberofglobalbrandsthatuseproductsmanufacturedbythecompany.

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

PorterAnalysis

BuyerPowerHigh

VLLs customers have a higher degree of purchasing power as the company is positioned in a
competitive market where quality makes a very big difference. It has been able to from customer
loyaltyduetoitsfocusonqualityandproductresourceenhancement.

SupplierPowerModeratetoHigh

VLL raw materials are chemical ingredients for its end products. Since chemical prices are highly
fluctuatingthesuppliershaveamoderatebargainingpower.

ThreatofNewEntrantsLow

Thesectorhasalargenumberofplayersandcompetitionisstiff.VLLhasastrongloyaltyamongstits
customersandhasbeenabletoentrenchfurtherintotheirbusinessesbysupplyingmoreproductsto
sameclient.Theservicestandardsandmaintenanceofqualityserveasentrybarriersfornewplayers
toenterthesector.

ThreatofSubstitutesLow

Threat of substitutes is low as product development is an expensive and time consuming process
whichonlylargeplayerscanafford.VLLisalsofocusingontherightareasofpreservatives,skincare,
oralcare,suncareandhaircare.

RivalryModeratetoHigh

Thehomeandpersonalcaresegmenthasahighercompetitionastheindustryhasalargesectionof
unorganizedplayersaswell.ThismakesVLLvulnerabletopricecompetitionandaconstantquality
checkisrequiredonproductsmanufacturedasanylapsecanleadtolossofbusiness.

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

MANUFACTURINGFACILITIES

ForActiveIngredients:

Bidar(Karnataka)

Plant established in 1991, has 60 reactors and equipped with

capacityof300kl.

Bonthapally(Hyderabad) Modern US FDA compliant plant established in 2005 with 78

reactorsandcapacityof350kl.

ForPharmaceuticalDosageForms:

Jeedimetla(Hyderabad)

Haridwar(Uttarakhand)

Kashipur(Uttarakhand)

Plantequippedtomanufacturedosageformssuchasliquidorals,
tablets,capsulesandointmentsinvarioustherapeuticcategories
andcompliantwithWHOGMPStandards.
Wide range of sterile products and small volume parenterals
(SVPs) are manufactured at this facility. The plant has
sophisticated equipment designed as per stringent US FDA
norms.
Facilityenjoystaxconcessionsandisengagedinmanufactureof
nonsterilesyrups,tablets,capsulesanddrypowders.

KEYBUSINESSRISKS

MaintainingQuality

VLLisservingglobalbrandsofhighreputethataremostcarefulofthequalityofproductbeingsoldto
their end customers. This makes VLL susceptible to stringent action if there is any compromise on
quality front. The company has to continually focus on maintaining product quality and this has
helpeditacquiremorebusinessfromsameclient.

DependenceonGlobalEconomicGrowth

VLL has a large number of global clients that it serves and its growth is linked to global economic
growth.Thecompanyshomeandpersonalcaresegmentislikelytoseeanimpactfromanyeconomic
slowdownorglobalmeltdown.

CompliancewithStringentNormsandGlobalStandards

VLLsfacilitiescomplywithUSFDA,WHOGMPandotherstringentnormsandanynegligenceonpart
ofthecompanycanleadtoseriousdamagestotheextentofproductrecallandlossofclients.

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

MANAGEMENTOVERVIEW

VLL is steered by a very strong management team headed by Mr. Santosh Varalwar who is the
ManagingDirector&CEOofthecompany.Heisthekeydrivingforcebehindthecompanyandhas
immenseexperienceinthePharmaceuticalsindustry.HeplayedanactiveroleinVVSPharmaceuticals
from 1985 onwards and later expanded the business to manufacture APIs by acquiring EMGI
PharmaceuticalsandChemicalsPrivateLimited,Bidar,whichwaslaterconvertedintoapubliclimited
companyandnamedasVivimedLabsLimited(VLL).VLLgotlistedonbothBSEandNSEin2005viaa
publicissueofsharesandsincethenMr.Santoshhasbeensteeringthecompanytovarioussuccessful
milestonesfromstrengthtostrength.

VLLhasastrongboardmemberteamof12andhadplannedtoincreasethestrengthto18inthe2010
AGM. The board members are eminent professionals from diverse fields and the company plans to
inductfurtherprofessionalteammembersintheboardtoenhancethethinkingtankandbringmore
expertiseinthemanagementoftheenterprise.

COMPANYOVERVIEW

Vivimedcommencedoperationsin1991asanAPImanufacturingcompany.Thecompanyforayedinto
the home and personal care (H&PC) segment in 1997 with Viv20 (Triclosan). From 19982004, the
companyfocusedonexpandingitspresenceacrosstheglobe,establishmentofR&Dcentre,capacity
expansion and manufacture of sterile and small volume parenterals. VLL got listed in 2005 on both
BSEandNSEandestablishedanewmanufacturingfacilityinHyderabadforspecialtychemicals.The
company made 2 acquisitions, first one in 2008 of UKbased James Robinson Limited (renamed as
VivimedLabsEuropeLimited)andthesecondin2009ofUSbasedHarmetInternationalInc.(renamed
asVivimedLabsUSA,Inc.)

VLLhasastrongR&Dfocusandhasmanagedtogrowfromasmallbulkactivesmanufacturerforfew
Indian pharmaceutical and FMCG companies to a supplier of choice for leading household brands
acrosstheglobesuchasUnilever,Proctor&Gamble,Johnson&Johnson,andLOrealamongstothers.

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

Revenueandrevenuegrowth(%)
60.0%

450.0
416.0
400.0

50.0%

350.0

343.5
40.0%

300.0

276.1

Revenue
inRscr

150.0

20.0%

24.4%

10.0%

100.0

21.1%

50.0

0.0%
FY09

FY10

FY11

PATandPATmargin(%)
14.0%

60.0

12.0%

48.8 50.0

PATMargin
PATinRscr

10.0%

40.0

8.0%

31.0

6.0%
4.0%

30.0

11.7%
20.0

19.4 9.0%

7.0%

2.0%

10.0

0.0%

FY09

Revenue
Growth

200.0

52.5%

250.0

30.0%

FY10

FY11

EBITDAandEBITDAmargin(%)
25.0%

90.0
84.1

20.0%

80.0
70.0

63.1

60.0

15.0%

50.0

45.0

10.0%

16.3%

18.4%

20.2%

40.0

EBITDA
Margin
EBITDAin
Rscr

30.0
20.0

5.0%

10.0

0.0%
FY09

FY10

FY11

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

Financials

INCOMESTATEMENT
Particulars(Rs.cr)

FY09

FY10

FY11

Operatingincome

276.12

343.49

416.00

EBITDA

45.01

63.08

84.07

EBITDAmargin

16.3%

18.4%

20.2%

Depreciation

7.15

8.73

9.15

EBIT

37.86

54.35

74.93

Interest

17.27

21.23

20.60

OperatingPBT

20.58

33.12

54.33

Otherincome

2.53

6.53

0.93

PBT

23.11

39.65

55.26

Taxprovision

3.76

8.63

6.43

Minorityinterest

PAT(Reported)

19.35

31.01

48.83

Less:ExceptionalItems

AdjustedPAT

19.35

31.01

48.83

CASHFLOW
FY09

FY10

FY11

Netcashfromoperations

(16.8)

55.1

NA

Netcashfrominvestments

(161.1)

(7.1)

NA

Netcashfromfinancing

179.3

(59.4)

NA

Changeincashposition

1.4

(11.4)

5.5

Openingcash

15.5

17.0

5.6

Closingcash

17.0

5.6

11.1

Particulars(Rs.cr)

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

Particulars(Rs.cr)

BALANCESHEET
FY09

FY10

FY11

Liabilities

EquityShareCapital

9.4

10.0

10.2

Reserves

90.8

129.9

177.68

Networth

100.2

139.9

187.8

ConvertibleDebt

2.3

5.0

8.86

OtherDebt

300.5

235.3

307.72

TotalDebt

302.8

240.2

316.6

DeferredTaxLiability(Net)

13.0

16.2

14.65

TotalLiabilities

416.1

396.3

519.1

Asset

NetFixedAsset

148.0

160.7

181.46

CapitalWIP

26.9

1.1

TotalFixedAsset

174.9

161.9

181.5

Investments

CurrentAsset

Inventory

69.1

79.3

84.5

SundryDebtors

70.7

93.9

127.6

Loans&Advances

26.4

15.2

91.6

Cash&BankBalances

17.0

5.6

11.1

TotalCurrentAsset

183.3

194.1

314.7

TotalCurrentLiabilities

31.4

59.4

68.3

NetCurrentAsset

151.9

134.7

246.4

Intangibles/Misc.Exp

89.2

99.8

91.3

TotalAsset

416.1

396.3

519.1

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

RATIOS
Particulars
Growth

FY09

Operatingincome(%)

FY10

52.5%

FY11

24.4%

21.1%

EBITDA(%)

43.7%

40.2%

33.3%

AdjPAT(%)

21.3%

60.2%

57.5%

AdjEPS(%)

18.9%

60.2%

57.5%

EBITDAmargin(%)

16.3%

18.4%

20.2%

AdjPATMargin(%)

7.0%

9.0%

11.7%

RoE(%)

21.2%

25.8%

29.8%

RoCE(%)

12.6%

18.4%

17.5%

RoIC(%)

4.8%

8.2%

9.7%

Priceearnings(x)

7.5

8.6

5.6

Pricebook(x)

1.3

1.9

1.4

EV/EBITDA(x)

8.7

7.2

5.3

EV/Sales(x)

1.4

1.3

1.1

Profitability

Valuations

Dividendpayout(%)

5.3

4.9

4.2

Dividendyield(%)

0.7

0.6

0.7

Inventorydays

91

84

74

Creditorsdays

66

43

NA

Debtordays

109

118

56

Workingcapitaldays

90

93

114

Totalassetturnover(x)

0.7

0.9

0.8

Netassetturnover(x)

0.9

1.4

1.2

Currentratio(x)

5.8

3.3

4.6

Debtequity(x)

3.0

1.7

1.7

Netdebt/equity(x)

2.9

1.7

1.6

Interestcoverage

2.2

2.6

3.6

B/SRatios

10

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

Particulars(Rs.cr)

QuarterlyFinancials
Q1FY11
Q2FY11

Q3FY11

Q4FY11

Q1FY12

NetSales

85.0

105.7

105.6

120.6

120.5

QonQgrowth(%)

0%

24%

0%

14%

0%

EBDITA

17.6

21.4

24.2

20.9

24.6

QonQgrowth(%)

3%

22%

13%

14%

18%

EBDITAMargin

20.7%

20.3%

22.9%

17.3%

20.4%

PAT
AdjustedPAT

9.8

13.5

13.3

12.2

12.4

9.8

13.5

13.3

12.2

12.4

QonQgrowth(%)

22%

38%

2%

9%

2%

AdjustedPATMagrin

11.55%

12.8%

12.6%

10.1%

10.28%

AdjustedEPS

9.7

13.3

13.1

12.0

12.2

PERSHARE
FY09

FY10

FY11

AdjustedEPS

19.0

30.5

48.0

CEPS

28.2

39.9

57.0

BookValue

106.6

140.4

184.8

Dividend(Rs.)

1.0

1.5

2.0

Actualo/sshares(mn)

9.4

10.0

10.2

Particulars

11

VIVIMEDLABSLIMITED(VLL) INITIATINGCOVERAGE(NOTRATED)

BibhashAsar

ResearchHead&

SeniorEconomist

F&OANDTECHNICALRESEARCH:

ResearchAnalystSectorAllocation

bibhash.asar@kcsecurities.com

02233026066

Email

DirectNos.

jaldeep.vaishnav@kcsecurities.com
muralidhar.shenoy@kcsecurities.com
vasania.kapil@kcsecurities.com
nemish.shah@kcsecurities.com

02233026066
02233026035
02233026036
02233026037

Email

DirectNos.

amit.anwani@kcsecurities.com

JaldeepS.Vaishnav
F&OAnalyst
MuralidharShenoy
SeniorAnalyst
KapilVasania

Analyst
NemishShah

Analyst

FUNDAMENTALRESEARCH:

ResearchAnalystSectorAllocation

AmitAnwani

Construction&Realty
CapitalGoods

02230287987

12