Small Cap Pharma Stock Grew 166% In 3 Years, Brokerage Sees 30% Upside, Assigns Buy

Chola Wealth initiates coverage on RPG Life Sciences Ltd. (RPGL) with a buy for Rs 1,100/share target price. Given the estimated target price by the brokerage, the stock is likely to surge and give up to 30% returns in 12 months. This is a Pharmaceutical sector small-cap company with a market capitalisation of Rs 1,409.45 crore.

Stock Outlook & Returns of Investment

On NSE, the stock of RPGL last traded at Rs 852.20/share, up 0.41% from the previous close of Rs 848.75/share. The 52-week low of the stock is Rs 450.55/share, and 52 week high is Rs 1,012.75/share, respectively. The stock fell 3.83% in 1 week, however, it grew 3.69% in 3 months, respectively. In the last 1 year, it grew by 35.65%. It has given the highest 166% positive return in the last 3 years. Whereas, in the last 5 years it gave 62.96%.

Fundamental Rationale

Domestic growth outlook: RPGL's management expects growth in its domestic formulations business (64% of FY22 sales) to be helped by the specialty and chronic segments, where the company has increased customer coverage through product launches. The focus is on introducing products that have both double-digit revenue growth and margin expansion potential.

Global growth strategy: Management has identified three steps to growth in the global formulations business (18% of FY22 sales): (1) build-up of the immunosuppressant portfolio by leveraging its leadership in the domestic market, (2) focus on products with a competitive advantage, such as Nicorandil (requires special manufacturing conditions) and Sodium Valproate PR (complex generic product), and (3) expansion of footprint in emerging markets such as Myanmar, Vietnam, the Philippines, Sri Lanka, Egypt and Sudan.

NLEM 2022: The company does not see much impact from the latest (13 September) revision of the National List of Essential Medicines (NLEM) list. RPGL's drugs such as Montelukast (Romilast) and Teneligliptin (GliptiNext) are a few of the new additions to the list. Some of the company's oncology drugs are also part of the new additions. RPGL's exposure to the NLEM list remains broadly unchanged at 35-36% even after the recent revision.

Margins: All products in RPGL's domestic formulations business have healthy double-digit EBITDA margins. Management highlighted a slew of initiatives taken by the company to promote margin improvement over the last few years. This entailed revisiting every aspect of operational efficiency, right from the frontend to the backend, including salesforce restructuring

 

Valuation

RPGL's revenue/EBITDA grew 13%/23% in FY22 with 165bps EBITDA margin expansion to ~20%. Domestic formulations contributed 75% to incremental growth amid sustained prescription generation, portfolio augmentation through launches and extensions, and plugging of sales leakages via better control over product returns and inventory.

 

About the stock

Part of RPG Enterprises, RPG Life Sciences (RPGL) is an integrated pharmaceutical company operating in domestic and international markets in the branded formulation, global generic and synthetic API space. The company draws 64% of revenue from domestic formulations, 18% from international formulations and 18% from APIs. It operates three manufacturing facilities with 1,100+ employees and caters to 50+ markets worldwide.

 

Disclaimer

The stock has been picked from the brokerage report of Chola Wealth. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.