Multi Baggers

Poly Medicure (Polymed) has proved its mettle by carving out a reputable business in the high quality disposable healthcare product segment. It has a basket of 40 different products. The commissioning of the new automated plant in October 2006 will augment the scalability of the company's revenues. Safety products launch in FY2007 would translate into higher value additions for the company. The company is attractively valued on account of its low PE and high earnings growth.

Poly Medicure has always been an export-oriented company since inception. Exports contribution has been more than 75% to the total revenues (Rs 525 Mn in FY06) and this rate is expected to be maintained despite the company now shifting its focus to domestic segment. Exports are expected to continue to grow at a strong pace with a growth rate of 25-30% YoY. The growth driver for exports would be European, Asian and South American markets. However, the company is also increasing its focus on domestic sales with the onset of the Indian corporate hospital segment. Domestic market is poised to grow at 20-25% YOY to meet the increased demand for quality healthcare products from hospitals, corporate, clinics and private nursing homes.

Polymed has applied for 4-5 US FDA patent last year for safety products. This will enable the company to move into a technological space having definite entry barriers. Due to the technology involved, safety products are expected to generate higher realizations. The approval is expected by end of CY06 or beginning of CY07 and sales is expected to commence thereafter. US markets are expected to contribute Rs 23.6 Mn and Rs 138 Mn in FY 2007 and FY 2008 respectively.

Polymed is focusing on volume growth in its domestic and international markets and not on realizations. Capacities have been increased by 142% during FY03-06 to 121 Mn pieces and now the company is further increasing capacity by 57%, through an automated plant located at Faridabad and another plant located at Haridwar, which would improve capacity by 29 Mn and 40 Mn disposables in October FY06 and FY07 respectively. The company will incur capex to the tune of Rs 120 Mn - Rs 140 Mn in the current financial year. Thus, continuous capacity addition along-with growth in volumes will boost the revenues of the company.

Introduction of new products coupled with volume expansion and backward integration would enable the company to grow at CAGR revenue growth of 28% and profit growth of 36% for a two-year perspective. The US safety products could be a big kicker to the business and will start contributing meaningfully in latter half of FY08. Based on these valuations, the stock enjoys a BUY recommendation on 6.9x FY 2008E (EPS Rs 23.34) with a price target of Rs 160.