This Pharma Stock Soared 2x in One Year. Is There Still Time to Invest?

The Indian medicine industry is experiencing significant growth. It is projected to be worth $65 billion in 2024 and is expected to double, reaching $130 billion by 2030. India is already a bigger player in this field, with a current market value of $50 Billion.

Exceptionally, India exports medicine to more than 200 countries worldwide. It supplies over 50% of the generic medicines required in Africa, nearly 40% of the generic medicines needed in the United States, and approximately 25% of all medicines used in the United Kingdom.
India is also a leading producer of vaccines, manufacturing about 60% of the world's vaccines for important childhood diseases. The country is a major supplier of specific vaccines, such as DPT, BCG, and Measles.

In fact, 7 out of 10 vaccines recommended by the World Health Organisation (WHO) come from India. Foreign investors have contributed significantly to the Indian pharmaceutical industry, with a total investment of $22.37 Billion since April 2000.

In the previous financial year (2022-23), India exported $25.3 Billion worth of pharmaceuticals, further highlighting the industry's strength and global reach.

The Indian pharmaceutical industry has been a fertile ground for growth and investment opportunities, giving rise to several prominent success stories. One such company that has captured the attention of investors is Gujarat Themis Biosyn. This small-cap pharmaceutical player has witnessed a remarkable surge in its stock price over the past year.

Pharma Stock's Performance Over the Past Year

Gujarat Themis Biosyn share price has been on a remarkable upward trajectory, soaring by an impressive 165.89% in the last 12 months (as of June 11, 2024, at 11:21 am). This stellar performance starkly contrasts the broader market, as represented by the Sensex, which has risen by only 22.3% during the same period.

The following table provides a snapshot of Gujarat Themis Biosyn's financial performance over the past few years, highlighting its consistent growth and profitability:

Note: TTM as of December 2023

Background of the Gujarat Themis Biosyn Company

Gujarat Themis Biosyn Limited is an India-based company that primarily manufactures pharmaceuticals and medicinal chemical products. The company's core business revolves around manufacturing and selling finished active pharmaceutical ingredients (APIs) through fermentation. Gujarat Themis Biosyn's product portfolio comprises Rifamycin-O and Rifamycin-S, intermediates that produce various antibiotics.

Specifically, Rifamycin S is an intermediate for manufacturing Rifampicin, which treats several bacterial infections, including tuberculosis, Mycobacterium avium complex, leprosy, and Legionnaires' disease. On the other hand, Rifamycin O is an intermediate for manufacturing Rifaximin, which is used to treat traveller's diarrhoea, irritable bowel syndrome, and hepatic encephalopathy. The company's research and development division focuses on developing fermentation cultures to support its product line.

Factors Contributing to the Gujarat Themis Biosyn Stock's Rise

Several factors have contributed to Gujarat Themis Biosyn's impressive stock performance over the past year. 

● One of the primary drivers has been the company's strategic shift from being a contract manufacturer with fixed profit margins to selling directly to large pharmaceutical clients. This move allowed Gujarat Themis Biosyn to capitalise on the domestic market demand and significantly increase its revenue and profit margins, which have remained consistently high since FY 2020.

● Furthermore, the company's plan to invest ₹200 crore in capital expenditure to boost the production of its existing products and APIs has instilled confidence in investors. By aiming to double its production capacity by the end of FY 2025, Gujarat Themis Biosyn is positioning itself for sustained growth and increased revenue generation. The new API facility is expected to generate approximately ₹160 crore in revenue, slightly higher than its trailing twelve months (TTM) revenue as of December 2023.

Current Financial Health

Gujarat Themis Biosyn's financial performance over the past few years has been impressive, with consistent growth in revenue, profitability, and cash flow generation. The company's operating profit margin has significantly increased, jumping by over 21 percentage points in FY 2020 and remaining steady. Additionally, the company has maintained a strong return on equity (ROE), indicating efficient use of shareholders' capital.
One notable aspect of the company's financial health is its debt-free status, with a debt-to-equity ratio of zero as of FY 2023. This financial flexibility allows Gujarat Themis Biosyn to pursue growth opportunities and weather potential market uncertainties more agilely.

Note: Data as of June 11, 2024 at 10:54 BSE

Market Position and Competitive Landscape

Gujarat Themis Biosyn operates in the competitive pharmaceutical industry, competing with established domestic and international players. While the company holds a niche position in fermentation technology, it faces competition from larger pharmaceutical companies with diversified product portfolios and broader market reach.
However, Gujarat Themis Biosyn's focus on specialised APIs and its expertise in fermentation technology has allowed it to carve out a distinct market position. Additionally, the company's strategy of expanding its production capacity and introducing new products could further solidify its market positioning and enhance its competitiveness within the industry.

Note: Data as of June 11, 2024 at 11:44 am
 

Risks and Challenges

While Gujarat Themis Biosyn's performance has been impressive, investors should be aware of certain risks and challenges that the company faces:

● Capacity constraints: Gujarat Themis Biosyn is operating at full capacity, and its expansion plans will take time to materialise. The new API facility, for instance, is expected to commence commercial operations in the second half of FY 2025 after undergoing multiple audits and approvals.

● Product concentration: The company's revenue heavily depends on just two products and two key clients, accounting for 56% of its revenue in FY 2023. Any contract changes or issues with these clients could significantly impact Gujarat Themis Biosyn's financials.

● Potential conflicts of interest: As the company enters the API manufacturing market, conflicts of interest may arise with its existing clients, who are also involved in API production.

● Regulatory risks: The pharmaceutical industry is subject to stringent regulatory oversight, and any changes in regulations or delays in obtaining approvals could impact Gujarat Themis Biosyn's operations and product launches.

● Valuation concerns: The stock's current valuation, with a price-to-earnings (P/E) ratio of around 54 times, may be considered high compared to industry peers, potentially limiting future upside potential.

Future Growth Prospects for Gujarat Themis Biosyn's Pharma Company

Gujarat Themis Biosyn's growth prospects appear promising, driven by its expansion plans and the growing demand for its products. With the planned capacity expansion and the introduction of new APIs, the company is well-positioned to capitalise on the increasing global demand for pharmaceuticals and APIs.

Moreover, the company's focus on research and development, coupled with its expertise in fermentation technology, could lead to developing new and innovative products, further diversifying its portfolio and reducing reliance on its current offerings.

However, it is essential to note that Gujarat Themis Biosyn's growth prospects are also subject to external factors, such as regulatory changes. These competition from larger players and global economic conditions may impact the pharmaceutical industry.

Conclusion

Gujarat Themis Biosyn's remarkable stock performance over the past year has been driven by its strategic shift, financial strength, and growth plans. While the company's niche position and expertise in fermentation technology have contributed to its success, investors should carefully consider the risks and challenges associated with investing in this stock. As with any investment decision, thorough research and understanding of the company's business model, financials, and industry dynamics are crucial before committing capital.