Stock in Action – SMS Pharmaceutical Ltd

Movement of Day

Analysis

1. The Stock is trading above short, medium and long term simple moving averages respectively.
2. The RSI represents the strong momentum in the stock right now.

Probable Rationale Behind SMS Pharm Surge

SMS Pharmaceuticals Ltd witnessed significant surge in its stock price, jumping up to 11.5% following announcement of its third-quarter results & fundraising initiative. Let's delve into financial data & potential reasons driving this surge.

Analysis & Interpretation

Financial Performance

SMS Pharmaceuticals witnessed slight decrease in net sales/income from operations from ₹ 166.64 crore in Dec 2022 to ₹ 161.48 crore in Dec 2023.

However, net profit surged significantly from ₹ 12.05 crore to ₹ 12.17 crore during same period, showcasing robust 142.12% YoY growth. 

This impressive profit growth could be key driver behind surge in stock price.

Fundraising Initiative 

Company announced fundraising plan of up to ₹ 114 crores through issue of convertible equity warrants to Promoters Group. This move can enhance liquidity & support future growth initiatives, thereby boosting investor confidence.

Operational Efficiency 

Operating Profit increased substantially from ₹ 18 crores in Dec 2022 to ₹ 29 crores in Dec 2023, indicating improved operational efficiency & profitability.

Earnings Per Share (EPS) 

EPS witnessed notable rise from ₹ 0.59 in Dec 2022 to ₹ 1.44 in Dec 2023, reflecting enhanced profitability & potential value creation for shareholders.

Strong Profit Growth

Remarkable 140% YoY increase in net profit highlights company's ability to capitalize on market opportunities & effectively manage its operations, attracting investor interest.

Strategic Fundraising 

Proposed fundraising initiative signals company's proactive approach towards strengthening its financial position & supporting future expansion plans, fostering investor confidence & optimism.

Operational Efficiency

Significant improvement in EBITD underscores company's focus on enhancing operational efficiency & cost management, further bolstering investor sentiment.

Earnings Growth Potential

With notable surge in EPS & robust profit growth, investors may perceive SMS Pharmaceuticals as promising investment opportunity with potential for sustained earnings growth.

Is there anything to Worry about SMS Pharma? 

However, when we compared SMS Pharmaceuticals' growth to that of industry, we discovered that, during same time period, industry's earnings grew by 17% while company's earnings have been declining. This raises serious concerns.

(source:simplywallstreet)

Strengths of SMS Pharma

1. Moderate Financial Performance with Improvement

Despite challenges in FY23, SMS Pharmaceuticals witnessed moderate financial performance, particularly highlighted by improved revenue in H1-FY24. Notably, company managed to maintain revenue levels despite decline in ARV segment, showcasing resilience & adaptability.

2. Proven Track Record & Experienced Management

SMS Pharmaceuticals is led by experienced promoters with over 30 years of industry expertise. Management's strategic direction & hands-on involvement has contributed to company's growth & operational efficiency.

3. Integrated & Accredited Manufacturing Facility

With global presence in over 70 countries, SMS Pharmaceuticals emphasizes strengthening its regulatory market presence. Company's manufacturing units meet stringent regulatory standards like USFDA, cGMP, & EDQM, ensuring quality & compliance.

4. Moderately Diversified Customer Base & Product Portfolio

SMS Pharmaceuticals has diversified its customer base, reducing dependency on top customers product portfolio, including Ibuprofen, Sitagliptin, & Sumatriptan, demonstrates diversity. Improvement in revenue from various segments indicates reduced product concentration risk.

Weaknesses of SMS Pharma

1. Satisfactory Financial Risk Profile with High Debt

While financial risk profile is satisfactory, total debt relative to operations remains high. Debt to PBILDT ratio increased significantly in FY23 due to decreased profitability. Although there's optimism for improvement, high debt poses risk to financial stability.

2. Exposure to Competition & Regulatory Risk

Regulatory challenges, increased competition, & pricing pressures are key concerns for SMS Pharmaceuticals. Regulatory compliance is critical, given stringent regulations governing pharmaceutical industry. Company's moderate scale of operations limits pricing flexibility & increases regulatory scrutiny.

3. Adequate Liquidity but Regulatory Compliance Critical

While liquidity appears adequate, SMS Pharmaceuticals faces challenge of maintaining regulatory compliance. Regulatory non-compliance could result in bans on products or facilities, hindering future growth prospects. Despite generating adequate cash flows, regulatory adherence remains paramount for sustained growth.

Conclusion

SMS Pharmaceuticals demonstrates notable strengths in its financial performance, experienced management, & diversified operations. However, challenges related to high debt, regulatory compliance, & competitive pressures pose risks to stock's performance. Investors should weigh these factors carefully before making investment decisions.
SMS Pharmaceuticals' surge can be attributed to its strong financial performance, strategic initiatives, & promising growth prospects. However, investors should conduct thorough due diligence & consider inherent risks before making investment decisions.