Private Client Research

Rating

Buy

Sector

Medical Equipment / Supplies / Accessories

Company

Poly Medicure Ltd

Medical Equipment/Supplies/Accessories

June 23, 2020

Sensex: 35430.43

CNX Nifty: 10471.00

NSE: POLYMED

BSE: 531768

Reco Price

Rs. 316

Price Target (2 - 3 Years)

Rs. 450

Upside

42.41%

Date

June 23, 2020

Sensex

35430.43

CNX Nifty

10471.00

Exchange

Code

NSE

POLYMED

BSE

531768

Stock Data

CMP (Rs)

307.45

Face value (Rs)

52 Week Range (Rs)

349.00 - 167.00

Market cap (Rs Crores)

2721.10

Price To Book Value (x)

6.14

P/E Ratio (x)

27.83

EV/EBIDTA (x)

15.21

One Year indexed Stock Performance

Poly Medicure Ltd Sensex

Return (%)

12m

36m

Absolute

8.42

41.70

77.83

53.98

Sensex

15.75

36.37

-9.44

13.78

Shareholders

(in %)

31-Mar

Promoter

48.76

Public

51.24

Others

Total

100

+91 22 6639 3000

research@stockaxis.com

Profile

Poly Medicure Limited (Polymed)is engaged in the development, manufacturing and marketing of quality Disposable Medical Devices. Thecompany manufactures and supplies in India and internationally, a diverse portfolio of disposable medical devices in the product verticals of Infusion therapy, blood management, gastroenterology, surgery and wound drainage, anesthesia and urology. The company has a well-diversified and de-risked business model, comprising a wide range of products with clients across more than 105 countries.

The company currently operates five manufacturing units in India and three abroad in China, Egypt (JV) and Italy.

Investment thesis

Implementation of Ayushman Bharat (AB-PMJAY):
AB-PMJAY, launched on 23rd September 2018, is the future of India’s healthcare ecosystem.It is a path-breaking initiative of the Government of India and is expected to positively impact across all levels of healthcare. It has opened multiple avenues for growth of the Medical Devices Industry.

Robust domestic growth:
India imports over 70% of its medical device requirements, which indicates a great opportunity for local manufacturing. Polymed has been investing heavily in increasing its manufacturing capacity and R&D; it has also been consistently introducing new products which are import substitutes. Currently 70% revenue comes from exports.We see significant scope for domestic business to grow and improve its share of total revenue.

Acquisition of Plan1 Health S.R.L.:
With the acquisition ofPlan1 health S.R.L., an Italy based manufacturing company, Polymed now has access to new technology in Oncology and Vascular Access devices and opens more opportunities with the acquired company’s worldwide customer base. Plan1 Health products adhere to thehighest quality standards in Europe and are synergetic with the company’s product portfolio.

New Jaipur facility to drive growth:
The company has embarked on an expansion plan for FY19-20 and FY20-21 by investing approximately Rs.100 crore. The new capacity will cater to additional demand created through Ayushman Bharat/ PM-JAY over the next few years and new customers in developed countries.

Focus on R&D and innovation:
Polymed has developed the technology to create moulds internally with strong R&D team comprising of 50+ engineers and 30+ engineers in process engineering. The company operates a research and development centre at Faridabad, Haryana, which is approved by Department for Scientific & Industrial Research and by the Ministry of Science & Technology, Government of India. R&D is primarily focused on developing new products within existing as well as new critical care product verticals and further improving existing processes and productivity.The company’s focus is on increasing its R&D spend to 5% of revenue and commercializing new innovative products.

Covid-19 impact:
As business of the company comes under essential services, the company was able to run the operations without much disruption, but it had to face short term issues with regards to manpower availability and supply chain. We believe there is no material impact of Covid-19 on the company; rather governments globally are working to improve their healthcare infrastructure, which is positive for companies like Polymed.

Industry

The healthcare industry in India comprises of hospitals, medical devices, clinical trials, outsourcing, telemedicine, medical tourism, health insurance and medical equipment & pharma. The industry is growing at a tremendous pace owing to its strengthening coverage, services and increasing expenditure by public as well private players.

The Indian Medical Devices market is currently valued at approximately USD 7.5 billion and growing at 12-15 % CAGR vis-à-vis a CAGR of 5% for the global medical devices industry. India is among the top 20 global medical devices markets and 4th largest medical devices market in Asia after Japan, China and South Korea. The medical device market continues to be dominated by imported products, which comprise of around 70% of total sales.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Particulars	FY2019	FY2020	FY2021 E	FY2022 E
Net Sales	610.83	687.24	824.69	989.63
COGS	208.66	217.05	257.30	298.87
Gross Profit	402.17	470.19	567.39	690.76
Gross Profit Margins	65.80%	68.40%	68.80%	69.80%
Employee Cost	116.61	138.76	164.94	197.93
Other expenses	156.10	167.47	206.17	239.49
Total Expenditure	481.37	523.28	628.41	736.28
EBITDA	129.46	163.96	196.28	253.34
EBITDA Margins	21.20%	23.90%	23.80%	25.60%
Depreciation	37.29	40.53	43.77	47.27
EBIT	92.17	123.43	152.50	206.07
Interest	11.75	18.31	20.51	22.97
Other Income	18.27	18.46	18.46	18.46
Profit before Tax (PBT)	98.69	123.58	150.46	201.56
Provision for Tax	34.68	29.85	37.91	50.79
Profit After Tax	64.01	93.73	112.54	150.77
EPS	7.41	10.86	12.75	17.09

Source: Stockaxis Research, Company Data

Valuation

New product launches and capacity expansion will drive incremental growth going forward. We expect robust domestic growth in demand of medical devices through implementation of Ayushman Bharat and with acquisition of Plan1 Health S.R.L. (Italy), exports are also expected to improve.

We expect the company to report Revenue and PAT CAGR of 20% and 27% respectively over FY20-22E. We initiate ‘Buy’ with target price of Rs.450, valuing the company at 26x FY22 earnings.

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