In Interaction with Mr. Rahul Nachane MD

Key Highlights

More than 90% of company's business is API's. Most of the API's are in veterinary segment and very less in humans.

The company does process tests of only off patented and matured products in its lab and has delivered about 16-18 API products. 3 more are in the pipeline for FY'16. There are no tax benefits unless; the company shifts its plants to an SEZ.

The company has 2 plants in Tarapur and one in Thane. None of these plants are approved by any country, as it is not required for the company, as there are no exports to Regulated Markets. Plants are very well tested and approved by the key customers and exporters.

More than 95% of manufacturing of API's is done and completed by the company in-house. The company hardly outsources and it does not do any toll contracts.

Of the total turnover while exports are around 75%, most of the exports are to non regulated markets. Although EU, accounts for 40% of exports, the final destination of the API is not EU, as it will be further exported to some other non regulated markets, hence country approval etc are not required.

Other countries to which the company exports are China, South East Asian countries, Latin America, North Africa etc. There are no exports to US.

None of the product constitutes more than 10% of net sales and Top 5 customers (all international) would constitute around 20% of total sales.

The company is not into any CRAMS business, but it produces API intermediates for 2 international companies. These are annual contracts and gets renewed every year.

Company hedges it's 25% of exports while rest contracts are open and settled at the time of settlement date.

In past 10 years, bad debts have stood at around Rs 65 lakh.

There is seasonality of business. Generally, Q4 of every FY are higher, but once again, any sudden diseases or climate impact can result in surprise demand for some product in some quarter.

In Q4 FY'15, there was a sudden off take of a particular high margin product by international customer. Some of the demand of Q3 also got shifted to Q4. Hence the OPM of around 21% was a one off. Generally, as per the management OPM of around 15%-15.5% are average margin for the company. But if off take of some products increases due to seasonal or other impact, then margin can increase in some quarter.

Trade Receivables stand around 4 months. As per the management, that's how the business terms are in non regulated markets. Only 5% of business are LC backed rest are open and are based on past experiences and customers credibility. For new customer, there are no advances or outstanding, the payment has to be LC at sight. Operating cash flow was marginally negative for last 2 years was predominately due to increase in receivables at the end of Q4.

The company has built up the capacities in FY'13 and then every year spent about Rs 3 crore for balancing and maintaining. Capex for FY'16 is also around Rs 5 crore which will be completed by June'15. The company is waiting for some environmental clearances in Tarapur plant, where it intends to spend about Rs 15 crore for building and equipments in existing plant. This would add about another 1/3^rd capacity to the existing capacity. The capacities are generally difficult to determine, as they depends upon product mix and specific requirements from the customer. This capacity will be used in FY'17.

Growth for FY'17 would depend upon how the new capacities come on stream in Mar'16 and how quickly the environmental clearance in the existing plant is received. Otherwise, growth for FY'17 would be around 12-15% YoY.

The growth going forward will come from existing products to existing customers, new products to existing customers, existing products to new customers and new products to new customers.

In domestic market, the company has his sales and marketing team on company's payroll, for meeting its business. In international markets, there are no distributors, but the company has agents which help in reaching the customers and completing the transaction. Also the company participates in international pharma exhibitions which help in creating awareness and tap new markets and new customers.

There are no group companies. The company got incorporated in 1981 and is currently led by the second generation since 2007.

Once the company achieves scale and size, dividend will be declared, so if everything goes well somewhere in FY'17, dividend may be declared.

For FY'16, management expects net sales of around Rs 105 crore and OPM of around 15-15.5%.

As per the management, there are no plans to dilute stake or raise equity for next 2 years. Entire expansion will be funded from debt and internal accruals.