Valiant Laboratories

Paracetamol manufacturer

Venturing into speciality chemicals to diversify revenue

Valiant Laboratories is an active pharmaceutical ingredient (API)/Bulk Drug manufacturing company in India having focused on manufacturing Paracetamol. Bulk drugs/APIs serve as raw materials for manufacturing finished dosage forms and formulations.

The company manufactures a single product, i.e., Paracetamol, which has several applications, like treatment of conditions such as headache, muscle ache, arthritis, back ache, tooth ache, cold and fever. Paracetamol is one of the commonly taken analgesics worldwide and is recommended as the first-line therapy in pain conditions by the World Health Organization (WHO).

The company manufactures Paracetamol in various grades such as IP/BP/EP/USP, as per the pharmacopeia requirements of its customers.

The company‘s manufacturing unit is at Palghar, Maharashtra, is spread across 2,000 sq. mts. of land with an aggregate annual total installed capacity of 9,000 MT per annum. Valiant Laboratories also has an R&D Facility, equipped with an analytical laboratory and infrastructure for developmental activities in existing products. The company’s capacity utilization was about 66.83% in FY2023.

The company, through its wholly owned subsidiary, Valiant Advanced Sciences, intends to establish a greenfield project in Gujarat, spread over land admeasuring about 57,766 sq. mtrs. The Proposed Facility will venture into manufacturing of speciality chemicals such as ketene and diketene derivative products. One of these products, namely, acetic anhydride, is used as a raw material in the process of manufacturing paracetamol and thus will assist the company in the backward integration process, also leading to better operational efficiencies and competitive pricing.

Going forward, the paracetamol API industry is expected to clock a CAGR of 5-7% between fiscal 2023 and fiscal 2027, largely driven by the demand from domestic formulation manufacturers as well as export markets.

The company intends to enhance its presence in international geographies, including regulated markets where its strategy is primarily to become the preferred supplier of Paracetamol API to pharmaceutical companies. In terms of revenue mix, the domestic market contributes 99.61% to total revenue in FY2023 and exports 0.39%.

The company was originally formed in year 1980 as a partnership firm under the Indian Partnership Act, 1932, under the name and style of Bharat Chemicals and gradually commenced manufacturing of Paracetamol by late 1982. In August 2021, the partnership firm was converted into a public limited company registered under the Companies Act.

The company is promoted by Shantilal Shivji Vora, Santosh Shantilal Vora and Dhanvallabh Ventures LLP (DVL). Shantilal Shivji Vora has over 45 years of experience in the chemical and pharmaceutical industry. Santosh Vora has experience of over seven years in the chemical industry.

In Fiscal 2023, Fiscal 2022 and Fiscal 2021, the company’s R&D expenses were Rs 16.8 lakh, Rs 29.2 lakh and Rs 36.1 lakh, respectively, which represented 0.05%, 0.10% and 0.20% of total revenue.

In FY2023, the company’s top 10 customers represented 42.61% of total revenue.

Offer and its objects

The IPO comprises fresh issue of 10,890,000 shares, aggregating to Rs 152.46 crore on upper price band.

The price band for the IPO is Rs 133 to Rs 140 per equity share of face value Rs 10 each.

The objectives for fresh issue includes Investment of Rs 80 crore in wholly-owned subsidiary, Valiant Advanced Sciences, for part-financing its capital expenditure requirements in relation to the setting up of a manufacturing facility for speciality chemicals, Investment of Rs 15.5 crore in VASPL for funding its working capital requirements and balance amount to be used for General Corporate Purposes.

Promoters of the Company are Shantilal Shivji Vora, Santosh Shantilal Vora and Dhanvallabh Ventures LLP. The promoters and promoter group hold an aggregate of 3,25,60,000 Equity Shares, aggregating to 100% of the pre-Offer issued and paid-up Equity Share capital. The post IPO shareholding for the same is expected to be around 74.94%.

The issue, through the book-building process, will open on 27 September 2023 and will close on 3 October 2023.

Strengths

The company is venturing into speciality chemicals because of its varied applications in agrochemical, pharma intermediary, dyes, pigments, food and fragrance industries. Production and supply of speciality chemicals through its Proposed Facility in Gujarat will diversify its revenue and increase growth.

The company is reducing its dependence on import of raw materials. The company imports Para Amino Phenol, being raw material for manufacturing of Paracetamol from China and Cambodia. Its percentage of imports to total purchase fell from 74.86% in FY2021 to 11.87% in FY2023.

The company purchases raw material through its promoter group company, Valiant Organics, that leads to better coordination, competitive pricing and reduced delivery transit time.

The Company’s Manufacturing Facility is strategically located at about 150 Km from JNPT (Nhava Sheva) Port, Navi Mumbai, and approximately 110 km from its registered office at Mulund West, Mumbai. This ensures ready access to port facilities. The company is also able to expediently import raw materials and export its products with a cost and logistical advantage.

The company intends to implement backward integration measures to improve its operational efficiencies. The company will consume acetic anhydride, which is used in the process of manufacturing paracetamol. These backward integration measures will allow it to gain competitive advantage by reducing product costs, control over supply of raw materials, minimising supply failure risk and reduce its dependency on third parties.

In Fiscal 2023, Fiscal 2022, and Fiscal 2021, its net cash flow from operations was Rs 9.10 crore, Rs 2.25 crore and Rs 22.95 crore, respectively. The company’s positive operating cash flows enable it to fund its strategic initiatives and pursue opportunities for growth.

The company has experienced promoters and a strong management team. Shantilal Shivji Vora has over 45 years of experience in the chemical and pharmaceutical industry. Santosh Vora has experience of over seven years in the chemical industry.

The company is focused on increasing its market share in the paracetamol API industry, acquiring new customers and retaining existing customers.

Weaknesses

The company is dependent on sales from single product (paracetamol) for its revenue. Any changes to the paracetamol API industry or product demand will adversely affect its business.

The pharmaceutical industry is a highly competitive market and therefore it is challenging to improve market share and profitability. Further, the operations of the company and VASPL are subject to extensive government regulations. Inability to compete effectively or comply with regulations can affect business.

The company operates from a Manufacturing Facility located at Palghar, Maharashtra. Any localized social unrest, natural disaster, or breakdown of services around Palghar, Maharashtra, could have material adverse effect on its business.

The company is subject to strict quality requirements, regular inspections, and audits by its customers. Any failure to comply with quality standards may lead to the cancellation of existing and future orders.

The company is dependent on a few suppliers for its raw materials, which are highly concentrated in the western region of India. In FY23, its Top 3 Domestic Suppliers contributed 85.35% to total purchase and suppliers from West India contributed 86.42% to total purchase.

The company does not own any registered copyright, trademark or trade name. The company sells its products under the label Valiant Laboratories. The company may become subject to claims alleging breach of third-party intellectual property rights. Any litigation related to its intellectual property could be time-consuming and costly.

The company is expanding its operations and establishing a network of customers in a line of business where it does not have a significant presence or prior experience. Any failure to expand into these new products could adversely affect business.

The company’s operations involve extending credit to customers in respect of sale of its API products and consequently, face the risk of uncertainty regarding the receipt of these outstanding amounts. For Fiscal 2023, Fiscal 2022, and Fiscal 2021, trade receivables amounted to Rs 88.56 crore, Rs 110.76 crore and Rs 42.51 crore, representing 26.52%, 38.00% and 23.31%, respectively, of total revenue.

There have been some instances of incorrect filings with the Registrar of Companies and other non-compliances under the Companies Act in the past, which may attract penalties.

Valuation

In FY23, consolidated sales were up by 14.54% to Rs 333.91 crore compared to FY22, which includes the period of Partnership Firm from 01 April 2021 to 15 August 2021. OPM decreased by 400 bps to 10.51%, which led to a 17.07% decrease in operating profit to Rs 35.09 crore. Other income increased 149.51% to Rs 4.86 crore, while interest cost increased 247.95% to Rs 0.25 crore and depreciation decreased 37.23% to Rs 1.56 crore. PBT decreased 8.54% to Rs 38.14 crore. Tax expenses for FY2023 were Rs 9.14 crore compared to tax expense of Rs 14.21 crore in FY2021. Net profit increased 5.48% to Rs 29 crore.

FY2023 EPS on post-issue equity works out to Rs 6.7. At the upper price band of Rs 140, P/E works out to about 21.

As of 25 September 2023, its listed peers such as Granules India trades at TTM P/E of 16, Jagsonpal Pharmaceuticals trades at TTM P/E of 37 and IOL Chemicalsand Pharmaceuticals trades at TTM P/E of 18. For FY2023, Valiant Laboratories OPM and ROE stood at 10.51% and 28.85% respectively, compared to 20.25% and 18.22% for Granules India, 14.43% and 16.81% for Jagsonpal Pharmaceuticals, 10.18% and 9.29% for IOL Chemicalsand Pharmaceuticals, respectively.