Hester Pharmaceuticals - Rs.102.00

Hester Pharmaceuticals Ltd (HPL) was incorporated in 1987 as a private ltd. company but converted into public ltd. company in 1993. It produces and markets veterinary and pharmaceutical products viz., Animal Health products, Poultry Vaccines, Poultry Diagnostic, Laboratory Kits and Reagents. Today it is one of the largest poultry vaccine manufacturers in India and the only company from India to export poultry vaccine. It has the licence to produce 12 types of live poultry vaccines and 28 types of Inactivated poultry vaccines. It produces vaccines for Fowl Pox, Fowl Cholera, Bronchitis, Gumboro, AE, LT, REO, EDS and Newcastle diseases besides combination vaccines. The company has good presence in the South mainly in Andhra Pradesh, Karnataka and Tamil Nadu. As it is a biotech company producing biologicals, HPL will soon be rechristened as Hester Bioscience Ltd. to reflect its activities more accurately.

HPL’s state-of-the-art manufacturing facility is located at Mehasana, near Ahmedabad in Gujarat. It holds ISO-9001:2000 & GMP certification from the drug authorities. Production procedures for poultry vaccines based on in-house advanced capabilities are being followed in the areas of virus propagation in specific pathogen-free embryos, tissue culture, batch fermentation of bacteria, lyophilization, emulsion preparation etc. Importantly, the company is the exclusive distributor for Merial Inc, the worlds largest Animal health company for marketing its complete range of poultry vaccines in India. Besides, HPL also represents Synbiotics of USA exclusively for poultry disease diagnostic kits. It also offers seromonitoring services under which it helps producers evaluate the immune response to administered vaccines and/or to obtain evidence of flock exposure to field strains.

In order to cater to the growing demand for poultry vaccines, HPL has embarked on a Rs.25 cr. expansion plan to increase its capacity by 300% i.e. 4 times from 120 cr. doses to 500 cr. doses of poultry vaccines by Oct 2006. This expansion will enable the company to manufacture not only the current poultry vaccines which are in high demand, but will also enable it to add a few specialty poultry vaccines. In future it also intends to diversify into the production of cattle and sheep vaccines in the new expanded facility. To fund its expansion, it has already raised around Rs.3 cr. through preferential allotment of around 2 lakh shares at Rs.150 per share and is now coming out with 2:5 right issue at Rs.70 per share. This shows the investor-friendly attitude of the management. For FY06, its total revenue increased by 25% to Rs.20 cr. but its net profit grew 12% to Rs.4.43 cr. posting an EPS of Rs.12 on its current equity of Rs.3.71 cr. Considering the company’s aggressive plan and special thrust on exports we estimate it to post a topline of Rs.28 cr. and PAT of Rs.7 cr. for FY07. This will work out to an EPS of Rs.13 on its fully diluted equity of Rs.5.20 cr. And at a reasonable discounting of 12x the scrip can cross the Rs.150 mark in the medium term. Moreover, once the record date for the right issue is announced, the scrip will shoot up by 25-30% in the short term. A solid buy.