Kks

HESTER BIOSCIENCES LTD

Buy at Rs.440/-. Duration 18 to 24 months

16th Mar, 2015

INDUSTRY OVERVIEW
ANIMAL VETERINARY VACCINES MARKET
The global market for animal vaccines is estimated at $5.8 billion by 2013 and
expected to grow at a healthy CAGR of 8.1% to $8.6 billion by 2018. The factors
responsible for the growth of the market include an increasing incidence of
zoonotic diseases in humans, growing prevalence of animal disease, increasing
investments and continuous innovation. With growing awareness of animal
health in emerging economies, players are introducing recombinant vaccines.
Europe accounts for the largest share of the animal vaccines market followed by
North America. The market is dominated by Tier 1 players; the top 5 players
contribute close to 70% of the global market. New entrants, though facing high
barriers in entering these markets on account of capital-intensity and strict
regulations, these markets are reaching maturity and could register mid-single
digit growth rates for five years. Asia, parts of Africa and LATAM are poised to
grow at double-digit rates owing to the increasing investment opportunities for
companies in these immature markets and improving healthcare facilities for
animals. Countries like China, India and Brazil are expected to be major growth
drivers.
Animal health sits at the intersection of two large and growing industry sectors:
pet care and livestock production. These two sectors are interrelated. As livestock
production and pet ownership increase in response to demand growth and
increased standard of living, animal health medicines and vaccines will be
required in greater volumes.
INDIAN VETERINARY INDUSTRY
The size of the Indian veterinary health industry in 2011was H22.50 billion (USD
375 million) out of which biological/biosecurity products held a 28% share, feed
additives held 26% and therapeutics held 46%.The growing awareness for health
animals is driving growth in the animal healthcare market; besides, a limit on
arable land, is making livestock an important source of food security. The Indian
veterinary market is gaining importance.

Kks
INDIAN LIVESTOCK SECTOR
India possesses the largest livestock population in the world and accounting for a
fifth of the worlds cattle population. The pet population though, still remains
small. Consequently, the Indian animal health care industry is estimated at Rs22
billion, contributing a mere 2.2% to the global health care industry. Livestock
plays an important role in the national economy as well as the socio-economic
development, augmenting family incomes and generating gainful rural
employment particularly for the landless marginal farmers and women.
Growing at a CAGR of about 4%, Indias livestock population is likely to grow
from 280 million to about 312 million by 2015. Cattle constitute 60 percent of
Indias livestock population followed by buffaloes (32 percent), goats (four
percent) and sheep (two percent). Andhra Pradesh, Rajasthan and Uttar Pradesh
account for about 35 percent of Indias total livestock population followed by
Karnataka, Madhya Pradesh, Maharashtra, Tamil Nadu and West Bengal.
India is the worlds largest milk producer with an annual output of around 116
million tonnes. With an annual growth rate of 4%, Indias milk production
accounts for 16% of the total global output. The Union Agriculture Ministrys
Department of Animal Husbandry, Dairying & Fisheries is focusing on increasing
animal population and productivity. Besides, the Ministry of Food Processing
Industries intends to implement programs to increase dairy processing and
value-added product export, in line with the vision to make India the food
factory of the world.
INDIAN POULTRY SECTOR
India is emerging as the worlds fifth largest egg producer. It produces 3.6% of
global egg production. India also ranks sixth in broiler production with an
annual output of 2.39 million tonnes of broiler meat estimated at about H350 bn.
The scope of this sector is reflected in the fact that the annual per capita
consumption of poultry in India is a mere 3.1 kg compared with 70-80 kg in
developed countries. India produces nearly 27 million chickens a week (95%
traded alive). The outlook for poultry production appears bright, the annual
growth of the layer business estimated at 6% and broilers at 12%. Efficient
distribution, cold chain infrastructure investments and increasing preference for
frozen chicken are likely to be key industry drivers.

Kks
COMPANY PROFILE
Hester Biosciences Limited is one of Indias leading animal health care companies.
Being the countrys second largest poultry vaccine manufacturer, Hester has
rightly positioned itself to capitalise on upcoming opportunities in the animal
health care industry globally.
Apart from poultry vaccines, the company has recently forayed into poultry
health products, large animal vaccines and large animal health products. These
four verticals put together will underpin Hesters identity as a strong animal
health company, addressing all segments in the animal health care sector.
Founded in 1987, by Mr. Rajiv Gandhi, a first generation entrepreneur, he
converted a proprietary trading business into Asias largest single-location
animal biological manufacturing facility. Benchmarked to international quality
compliance standards, Hester manufactures and markets veterinary vaccines and
health products in the Indian as well as globally.
The Company has a state-of-the-art manufacturing facility unit in Mehsana,
Gujarat, complying withstringent international norms. Hester is WHO-GMP,
Good Laboratory Practices (GLP), ISO 9001, ISO 14001&OHSAS 18001 certified.
The Companys product portfolio comprises of over 45 vaccines and over 70
health products, which are distributed through Hesters all-India distribution
network. Exports are currently to eight countries with the registration process on
in over 20 countries.
Hesters key strength is embedded in its cutting-edge research and development
capabilities. The Companys R&D Centre is recognized by the Department of
Scientific and Industrial Research (DSIR), Ministry of Science and Technology,
Government of India. Current research activities are aimed at developing next
generation veterinary recombinant vaccines.
For the financial year 2013-14, the company reported revenue of INR 690 million
with a net profit of INR 100 million. In the current financial year, 9 months results
have shown revenue of INR 666.76 million with a net profit of INR 104.55 million.

Kks
SYNOPSIS

Hester Biosciences Ltd manufactures and markets animal vaccines and health
products.
In Q3 FY15, net profit jumps to Rs. 33.72 mn against Rs. 25.45 mn in Q3 FY14,
an increase of 32.50%.
Revenue for the quarter rose by 37.95% to Rs. 218.83 mn from Rs. 158.63 mn,
when compared with the prior year period.
During Q3 FY15, EBIDTA is Rs. 63.52 mn as against Rs. 50.98 mn in Q3 FY14,
grew by 24.60%.
During the quarter, PBT increased by 78.06% to Rs. 45.37 mn from Rs. 25.48
mn over the corresponding quarter of previous year.
EPS of the company stood at Rs. 3.96 a share during the quarter as against Rs.
2.99 over previous year period.
During the quarter, the company has acquired 100% share holding of Gujarat
Agrofarm Ltd at Rs. 5.25 mn, thereby formed new Wholly Owned Subsidiary
Company.
Hester Biosciences Ltd has approved Composite Scheme of Amalgamation
and Arrangement between Diavetra Lifesciences Private Ltd, Gujarat
Agrofarm Ltd, Hester Biosciences Mauritius Ltd and Innoves Animal Health
Private Ltd.
Net Sales has been reported at Rs. 666.76 mn for 9M FY15 as compared to Rs.
472.01 million for 9M FY14, thereby registering a growth of 41%.
Net Profit for 9M FY15 at Rs. 104.55 mn as compared to Rs. 61.73 mn in 9M
FY14, grew by 69%.
Net Sales and PAT of the company are expected to grow at a CAGR of 18%
and 20% over 2013 to 2016E respectively.

Kks
Results Updates- Q3 FY15
Hester Biosciences Limited manufactures and markets animal vaccines and
health products in India and internationally has reported its financial results for
the quarter ended 31 Dec, 2014.

The companys net profit jumps to Rs. 33.72 million against Rs. 25.45 million in
the corresponding quarter ending of previous year, an increase of 32.50%.
Revenue for the quarter rose by 37.95% to Rs. 218.83 million from Rs. 158.63
million, when compared with the prior year period. Reported earnings per share
of the company stood at Rs. 3.96 a share during the quarter as against Rs. 2.99
over previous year period. Profit before interest, depreciation and tax is Rs. 63.52
million as against Rs. 50.98 million in the corresponding period of the previous
year.
Break up of Expenditure

Kks
Latest updates

Hester Biosciences Ltd has approved Composite Scheme of Amalgamation

and Arrangement between Diavetra Lifesciences Private Ltd, Gujarat
Agrofarm Ltd, Hester Biosciences Mauritius Ltd and Innoves Animal Health
Private Ltd.
Hester has acquired 100% share holding of Gujarat Agrofarm Ltd at Rs. 5.25
mn. Gujarat Agrofarm, a company located in Gujarat, is involved in the
manufacturing of growth media. This backward integration by Hester aims
at securing for itself a source of growth media used in the production of
vaccines. The acquisition would enable Hester in saving over Rs 15.0 mn
annually towards growth media procurement costs.

Kks
FINANCIAL HIGHLIGHT
Balance Sheet as at March 31, 2013 -2016E

Kks
Annual Profit & Loss Statement for the period of 2013 to 2016E

Quarterly Profit & Loss Statement for the period of 30th June, 2014 to 31st Mar,
2015E

Kks
Ratio Analysis

OUTLOOK

At the current market price of Rs. 411.90, the stock P/E ratio is at 24.06 x
FY15E and 20.91 x FY16E respectively.
Earnings per share (EPS) of the company for the earnings for FY15E and
FY16E are seen at Rs. 17.12 and Rs. 19.70 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 18%
and 20% over 2013 to 2016E respectively.
On the basis of EV/EBITDA, the stock trades at 14.33 x for FY15E and 11.85 x
for FY16E.
Price to Book Value of the stock is expected to be at 3.87 x and 3.27 x
respectively for FY15E and FY16E.
Hesters growth is on account of buoyancy and strong performance across 3
of the 4 business verticals. Demand for Hesters poultry vaccines and health
products as well as for its large animal health products have increased
considerably. The companys focus is now on improving the bottom line and
in introducing its own research products, besides launching the Large
Animal Vaccine Vertical in Q4 FY 14-15. Hence, we recommend BUY in this
particular scrip with a target price of Rs. 820.00 for Medium to Long term
investment more than Rs.3,300.00.