Fundamental Analysis Of Neuland Laboratories: Following the pandemic outbreak, worldwide health issues have become more prominent, leading to an increased focus on pharmaceutical companies. Among these various companies in India, one such pharma company that has witnessed exceptional growth in its share price is Neuland Laboratories. So without any further ado, we will conduct a fundamental analysis of Neuland Laboratories and try to identify the company’s future potential.
Fundamental Analysis Of Neuland Laboratories
We’ll begin our Fundamental Analysis of Neuland Laboratories by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of future plans and a summary.
India is the 12th-largest market in terms of value and the world’s third-largest pharmaceutical producer in terms of volume. The Indian pharmaceutical sector includes generic medications, over-the-counter medicines, bulk drugs, vaccines, contract research and manufacture, biosimilars, and biologics.
The Indian pharmaceutical sector grew at a compound annual growth rate (CAGR) of 6.6% from 2016 to 2019. It is projected to grow at a CAGR of 12.3% from 2020 to 2030.
The growth in this sector can be attributed to a number of factors, including the enormous potential of the generics market, advances in the country’s medical infrastructure, the gradual introduction of patented pharmaceuticals, and greater public awareness of health and hygiene, especially in light of COVID-19.
Neuland Laboratories, established in 1984, is a leading, global active pharmaceutical ingredient (API) manufacturer and developer that caters to the pharmaceutical and biotech industry’s chemistry needs.
The company offers flexible API manufacturing and development services, from pre-clinical synthesis to supplying NCEs and intermediates at all clinical stages, as well as commercial and generics. Currently, it supplies its products to customers from over 80 countries around the world
The Company operates three manufacturing plants employing 1573 employees. These plants consist of 7 production blocks in Unit 1, 6 production blocks in Unit 2, and 4 production blocks in Unit 3.
In terms of revenue breakdown, the company earned a total of ₹1,200.95 crores in FY23. Out of this, 73% of the revenue came from exports.
The following image shows the geographical revenue breakdown of the company:
Coming to its segmentwise revenue, the company earned 37% of its revenue from the CMS segment, 32% from the prime segment, 27% from the speciality segment and 4% from others during FY23.
Neuland Laboratories – Financials
Using the annual reports declared by the company, we will now conduct a fundamental analysis of Neuland Laboratories.
Revenue and Net Profit Growth
The company’s profit and loss account indicates a consistent increase in the company’s revenue from FY19 to FY21. However, there was a stagnation in its revenue during FY22 which was due to the lower-than-demand expected for some of its key products such as Levetiracetam, and Dorzolamide on the Generic Drug Substance (GDS) Business as well as delays in the execution of projects on the Custom Manufacturing Solutions (CMS) side
But in FY23, there was an exceptional increase in its earnings which was led by its growth in specialty and CMS segments. During FY23, the company reported a total revenue of ₹1200.95 crores and its CAGR growth stood at 15.69% from FY19 to FY23.
Similarly, the profits of the company consistently increased from FY19 to FY21. But there was a slight drop in its profits during FY22 which was followed by a good recovery in FY23 with the net profit reporting at ₹163.12 Crores.
This gives the company a CAGR growth of 78.30% from the period of FY19 to FY23.
The table below shows the total income and net profit of Neuland Laboratories for 5 financial years:
|Year||Total income (₹ In crores)||Profit after tax (₹ In crores)|
|4-year CAGR growth||15.69%||78.30%|
Let us now analyse the margins of the company to understand the reason behind the company’s sudden increase in earnings.
The operating profit margins and net profit margins of the company declined during FY22. This was an impact of higher operating expenses incurred for higher manpower hiring for ramping up the Unit-III facility and for building future capabilities in R&D.
However, these margins have exceptionally increased during FY23. During the recent financial year, the company reported operating and net profit margins of 22.82% and 13.73%, respectively.
The increase in operating profit margins can be attributed to the company’s shift from low-margin prime segment to high-margin Specialty and CMS segments.
The increase in net profit margins can be attributed to to slower increase in depreciation compared to an increase in EBITDA
The table below shows the operating profit margins and net profit margins of Neuland Laboratories for 5 financial years:
|Year||Operating Profit Margin||Net Profit Margin|
Return Ratios: RoCE and RoE
The company’s return ratios are also indicating a positive outlook on the performance of the company.
If we take a look at the return on equity of the company, we can see that its ROE and RoCE were low from FY19 to FY22. However, during FY23, the company reported exceptional return ratios that can be attributed to its increased margins and reduction in debt.
During FY23, the company reported an ROE and a RoCE of 17.84% and 21.26%, respectively. This indicates that the company has given a good return to shareholders’ capital and has also effectively utilized its company resources.
The table below shows the ROE and RoCE of Neuland Laboratories for 5 financial years:
Debt & Interest Coverage Ratio
If we take a look at the leverage situation of the company, we can notice that the company has generally maintained a low level of debt in the company. However, this debt was further reduced in FY23, due to which its debt-to-equity was reported at 0.06.
The reduction in the debt indicates a reduced financial position burden on the company for the repayment of interest and principal amount.
Additionally, the company’s interest coverage ratio has increased to 17.51 This indicates that the company has earned enough gross profits to meet its interest expenses 17 times.
The increased interest coverage ratio can be attributed to the company’s increased margins clubbed with its major reduction in debt.
The table below shows the leverage ratios of Neuland Laboratories for 5 financial years:
|Year||Debt to Equity||Interest Coverage Ratios|
Future Plans Of Neuland Laboratories
So far we looked at the previous fiscals’ data for our fundamental analysis of Neuland Laboratories. In this section, we’ll try to make sense of what lies ahead for the company and its investors.
- The company is constantly investing in reducing costs, increasing capacity, and improving quality for its commercial APIs so that it can establish a leadership position for the molecule throughout its life cycle.
- The molecules the company recently started selling through the contract manufacturing side will affect its business directly. Furthermore, they are expected to commercialise two more molecules in the coming years.
- The company has plans to regain its market share for some of its prime GDS APIs that did not perform well in the previous fiscal year.
- In FY24, the company expects its Unit III utilisation to increase to around 68%-69%, providing a window of growth and improving operating leverage. This increase in utilisation can be attributed to the change in its product mix.
- In order to meet the customers’ demands, the company will be adding new production blocks in Unit III and investing in R&D infrastructure.
Key Metrics Of Neuland Laboratories
We are almost at the end of our fundamental analysis of Neuland Laboratories. Let’s take a quick look at the stock’s important metrics.
|CMP||₹ 3,851.05||Market Cap (Cr.)||₹ 4,799.92 Cr|
|Promoters Holding||36.03%||Debt to Equity||0.06|
|Net Profit Margin(%)||13.73%||Operating Profit Margin(%)||22.82%|
As we conclude our fundamental analysis of Neuland Laboratories, we can draw the conclusion that the company is well-positioned to grow in the future. This can be attributed to its future plans, increased margins and an expectancy for the increase in exports of pharma products.
It is also important to note that investment decisions should not be based solely on the information provided above. It is recommended that individuals conduct their own research before making any investment decisions.
What are your thoughts on the future of Neuland Laboratories? Do share your thoughts in the comments section.
Written By Aaron Vas
By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks also get updated with stock market news, and make well-informed investment decisions.
Start Your Stock Market Journey Today!
Want to learn Stock Market trading and Investing? Make sure to check out exclusive Stock Market courses by FinGrad, the learning initiative by Trade Brains. You can enroll in FREE courses and webinars available on FinGrad today and get ahead in your trading career. Join now!!