HIRAN ORGOCHEM...........(Code No: 506170) (Rs.126)

THE STOCK WAS RECOMMENED ARND 100 LEVELS 2 WEEK BCK.....DETAILED REPORT IS BEEN SHARED NOW

Mumbai-based Hiran Orgochem has announced mind-boggling results for FY06 wherein sales increased by 98% but net profit skyrocketed by over 876% to Rs.13.4 cr. from Rs.1.4 cr. in FY05. The EPS for FY06 works out to Rs.17.4. Dealers say that the increase in turnover and profitability is mainly on account of the expansion and introduction of new products. Knowledgeable quarters are said to be active in the counter and the volume, too, has gone up. HOL manufactures bulk drugs like Ciprofloxacin Hydrochloride -USP. The company's plant at Panoli has an installed capacity of 240,000 Kgs.

HOL is a medium sized company founded in 1983, manufacturing pharmaceutical bulk actives and has grown to be one of the most successful and dedicated manufacturers of bulk actives. It provides services on a quick-turn, cost-effective basis and has successfully expanded its customer base and delivered solid operating returns. The global pharma market is projected to grow by 25% over the next year and provide it with a large and growing target market. Ciprofloxacin Hydrochloride is still ranked number one in its product portfolio followed by Enrofloxacin Base, Ciprofloxacin Base, Ciprofloxacin Lactate and Enrofloxacin Hydrochloride.

HOL posted excellent results during FY06 as enumerated above. The point in consideration, however, is that this net profit was arrived after making a huge tax provision of Rs.6.6 cr. The EPS on its expanded equity works out to Rs.17.5. Diluted EPS works out to Rs.19. HOL has maintained the dividend at 15%.

During the year, HOL allotted 15 lakh shares at a premium of Rs.120 per share on a preferential basis to the promoters taking its equity to Rs.7.7 cr. With reserves increasing to Rs.39.3 cr., the book value of the share works out to Rs.61. The promoters hold 39.4% in the equity capital, FIIs hold 2%, 14.8% is held by PCBs leaving 43.8% with the investing public.

HOL has also issued 23 lakh optionally fully convertible warrants (OFCWs). Each warrant is convertible at the sole option of the holder, any time on or after 1st April 2006 but before the expiry of 18 months from the date of allotment, into 1 fully paid up equity share at an exercise price of Rs.130 per warrant. The amount so raised has been utilized for doubling the production capacity from 480 MTA to 960 MTA and which commenced partial operation during FY06.

Coming to its future prospects, the pharmaceutical sector offers huge opportunities. The Indian pharmaceuticals industry, which was worth US $5.58 billion in 2003-05, grew at a CAGR of 17% in the last decade. According to McKinsey's projections, it is expected to grow to US $25 billion by 2010 and further to US$ 75 billion by 2020. There are, therefore, enormous opportunities for Indian pharma companies for exports in the overseas generics market, as drugs worth US$ 80 billion are go off patent by 2012 in USA. This throws up opportunities worth US$ 16 billion for generic companies assuming 80% price erosion after a drug goes off patent. Further, with the advent of the product patent regime earlier this year opportunities for growth through the CRAM (Contract Research and Manufacturing) model have also opened up.Molecules worth US$ 75 billion will go off patent by 2008 qualifying them for generic manufacture. This will accelerate competition amongst global pharma players. This in turn has translated into global generic players partnering cost effective API manufacturing Indian companies to produce these products. Due to its skills in process chemistry and expertise in low cost production base, the Indian pharma industry is expected to emerge as an outsourcing hub for the world generic pharma leaders. This will lead API manufacturing companies to go in for backward integration and optimize their low cost production bases to encash the opportunities and benefits. HOL is all set to grab a sizeable chunk of share in these growing opportunities.HOL has excellent prospects, as Ciprofloxacin has gone off-patent in January 2005 in most markets providing an opportunity to share the world market consumption of 15000 metric tones. Also, the growing demand in the domestic market will be around 2000-2200 metric tonnes per annum.HOL will increase its investments in marketing, particularly in Europe, by obtaining regulatory approvals like World Health Organisation's (WHO) Good Manufacturing Practice (GMP), European Certificate of Suitability. HOL will launch a couple of new products in FY07 and intends to acquire a good market share in coming years. It hopes to reduce cost and increase efficiency in all areas of operations by further increasing capacity

For FY07, HOL expects further organic growth in both revenue and net profit. Taking into account the impact of the increase in marketing, the full benefits of which will be realized in the medium-term, HOL's long-term profit forecast is positive. It is all set to achieve an EPS of Rs.24 in FY07 increasing further to Rs.27 in FY08. The shares are available at Rs.126 at a P/E of 7.4 on its FY06 earning and a forward P/E of just 5.3 on FY07 earnings. The industry P/E currently rules firm at 25 making investment in the HOL share quite attractive. The 52-week high and low of the share has been Rs.229/35.

MY TAKE : THE SHARE IS VERY ATTRACTIVE AT CURRENT LEVELS.......50% CAN BE INVESTED ARND CURRENT LEVELS N ANOTHER 50% ARND 100....A GOOD SOLID SUPPORT LEVEL....MANAGEMENT SEEMS TO BE HONEST