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Alpha | Poly Medicure Ltd. – Equity Research Desk

December 30, 2024 . Equities Desk

Alpha . Equity Research

Poly Medicure Ltd – Key player in medical devices space

Poly Medicure Ltd., founded in 1995 and based in New Delhi, is a leading manufacturer of medical devices across infusion therapy, oncology, urology, critical care, and more. As India’s top medical device exporter for 12 years, the company operates 12 manufacturing facilities and an R&D center, producing 1.5B devices annually. With over 200 devices in its portfolio and clients in 125+ countries, Poly Medicure holds 400 patents, with 44 more pending globally.

Products and Services

Oncology, infusion therapy, cardiology, and gastroenterology products
Urology, anesthesia, and respiratory care solutions
Dialysis systems and COVID care products
Surgical and wound drainage devices
Blood collection systems and blood management tools
Key products include:
Cannulas and catheters
Needles and syringes
Blood bags and collection tubes
Rapid diagnostic kits

Subsidiaries: As of FY24, the company has 5 subsidiaries and one associate company.

Growth Strategies

Renal Sector Expansion: Investing in affordable renal care with pain-reducing dialysis products, targeting revenue growth from ₹90 crore to ₹140-150 crore by FY25. Plans include doubling capacity and installing 500 renal machines.
Capacity Growth: Establishing four new plants with a ₹500 crore investment, boosting production capacity to 1.7-1.8 billion units annually by FY25.
Cardiology and Critical Care: Expanding market share through import substitution, new products, and a ₹1,000 crore QIP for production and capacity expansion.
Sales Team Growth: Adding 100 salespeople in FY25, focusing on critical care and cardiology markets.
Automation and Reach: Enhancing automation and leveraging new plants to expand domestic and international markets.

Operational Performance

Q2FY25

Revenue: ₹420 crore, up 25% YoY (Q2FY24: ₹337 crore).
EBITDA: ₹115 crore, a 37% YoY growth (Q2FY24: ₹84 crore).
Net Profit: ₹87 crore, up 40% YoY (Q2FY24: ₹62 crore).
Margins:
EBITDA margin improved from 25% to 27%.
Net profit margin increased from 18% to 21%

FY24

Revenue: ₹1,376 crore, up 23% YoY, driven by robust demand and business expansion.
EBITDA: ₹419 crore, a 38% growth YoY, reflecting operational efficiencies.
Net Profit: ₹258 crore, up 44% YoY, supported by strong margin improvements.

Financial Performance (FY21-24)

Strong Growth: Achieved a revenue CAGR of 21% and a net profit CAGR of 24% over the past 3 years (FY21-FY24).
Consistent Returns: Maintained a 3-year average ROE of 16% and ROCE of 20%, reflecting efficient capital utilization.
Robust Capital Structure: Strong financial stability with a low debt-to-equity ratio of 0.06.

Industry outlook

Government Initiatives: Driving competitiveness in biotechnology, medical device manufacturing, and healthcare.
Focus Areas: Manufacturing of disposables (catheters, syringes, feeding tubes) and implants (cardiac stents, intraocular lenses).
Import Dependency: India relies on imports for 70-80% of medical devices, making the sector underdeveloped.
Make in India Initiative: Prioritized to reduce import dependence and boost domestic production.
Market Growth:
Diagnostic equipment market expected to reach US$ 6 billion by 2027 (up from US$ 4 billion in 2023).
The Indian medical devices market is projected to grow at a CAGR of 16.4%, reaching US$ 5 billion by 2030.

Growth Drivers

Stricter Regulations: Enhanced government regulations and mandatory standards for importing medical devices are expected to drive demand for localized products.
100% FDI Allowed: 100% foreign direct investment under the automatic route is permitted for greenfield pharmaceuticals and medical device manufacturing.
Union Budget Allocation: Rs. 89,287 crore allocated to the healthcare sector in the Union Budget 2024-25, boosting industry growth.

Competitive Advantage

Poly Medicure Ltd operates in a competitive landscape with players like Tarsons Products Ltd and Centenial Surgical Suture Ltd. However, Poly Medicure stands out as it does not have any listed competitors of similar market capitalization and scale of operations. The company is generating superior returns on invested capital, supported by consistent revenue growth, further solidifying its position in the market.

Outlook

Revenue Growth: Achieved 23% revenue growth in H1FY25, on track to meet FY25 target of 22-24%.
Revenue Mix: 70% from exports, 30% from domestic markets, with plans to maintain this ratio.
EBITDA Margin: Guidance of a 100-150 basis points improvement in FY25.
Capital Expenditure: Rs. 250 crore allocated for FY25, with Rs. 150 crore already spent in H1FY25, primarily funded by internal accruals.
Product Launches: Plans to launch 10-12 products annually, with 20-30 products in development for the next 2-3 years.

Valuation

We expect Poly Medicure Ltd to continue its growth momentum, driven by its strong presence in the fast-growing medical disposable segment, leading market share in key categories, entry into larger markets, expansion into margin-accretive segments, and strong financials. We recommend a BUY rating on the stock with a target price (TP) of Rs. 3,016, 61x FY26E EPS.

Risks

Forex Risk: With significant operations in foreign markets, the company is exposed to forex risk. Unforeseen movements in the forex market could adversely impact its financial performance.
Competitive Risk: The medical device industry is undergoing a transformative phase, with technological advancements and new entrants increasing competition, posing risks to market share and profitability.

Note: Please note that this is not a recommendation and is intended only for educational purposes. So, kindly consult your financial advisor before investing.