Brooks Laboratories

Brooks Laboratories, promoted by Atul Ranchal Rajesh Mahajan (with 35.33% stake) is a contract-manufacturing player supplying injection tablets and dry syrups to leading domestic pharma companies. It manufactures a wide range of products in the formulation segment encompassing beta lactam, cephalosporin & general injections. In the domestic markets its customer base (currently 158) includes companies like Zydus Cadila, Aristo Pharmaceuticals, FDC, Nectar Life sciences, Hetero Healthcare, Medley Pharmaceuticals, Wockhardt, Parental Drugs and Alembic. Further, it is now expanding the business into the International markets of Africa, Middle East and Latin America. It currently own and operate a manufacturing facility (CGMP certified) at Baddi, Himachal Pradesh (commissioned commercial production in 2006), with 1620 lakh (injections – 300, tablets –1200 and dry syrup – 120) combined capacity. The present manufacturing facility of the company is WHO-GMP compliant, which allows selling the goods in India, Africa, and South East Asian Countries & CIS Countries only.



As demand from European Union Countries for pharmaceutical products is growing rapidly and offer better margins, the company plans to develop new manufacturing facility at JB SEZ, Panoli, Gujarat, which is expected to be commissioned in the fiscal ending March 2012 (FY 2012). This is mostly funded through the IPO proceeds. This facility will be an ultra modern facility as per EU GMP and WHO-cGMP requirements for manufacture of cephalosporins & beta lactum products in injectable, tablets and dry syrup dosage form for a combined annual capacity of 3,000 lakh tablets, 600 lakh dry syrup bottles and 600 lakh Injectables. It has acquired 7.54 acres for Rs 63.30 lakh from JB SEZ Pvt. Ltd. The new unit will be exclusively for exports and mainly to cater to high-end market of Europe, CIS and South Africa.

To set up new unit at Panoli, the company will require additional funds to meet the increased working capital requirements. Net working capital requirement for FY 2013 for both the units is estimated to be Rs. 33.50 crore. This is proposed to be part funded by loan from bank of Rs.16.00 crore and Rs.12.50 crore from internal accruals. The remaining will be funded from the public issue.

Strength:

It has diversified customer base and strong presence in the domestic market with variety of products in formulations

Weakness:

Competition in the domestic as well as overseas market is high. The company does not seem to have any major USP vis-à-vis other players.

Valuation:

The company recorded 17% growth in net sales to Rs 52.54 crore in FY 2011. OPM inclined by 130 basis points to 17.6%, resulting in operating profit to increase by 26% to Rs 9.27 crore. Finally, there was 35% growth at PAT level to Rs 6.99 crore. There was no major increase in sales the past two years (sales in FY 2009 were Rs 44.93 crore) as it decided to concentrate on products/companies offering more margin.

At the issue price of 90-100, the EPS for FY 2011 (on post-IPO equity) works out to Rs 4.1-4.3 and PE 22-23 times. This is high for a small formulation contract manufacturer. The sector (Pharma-Indian-Formulations) TTM P/E is 9.3