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Hikal (Buy)
CMP: ₹235.75
Target: ₹320
Hikal Ltd is engaged in the manufacturing of various chemical intermediates, specialty chemicals, active pharmaceutical ingredients (APIs) and contract research activities.
Hikal has been continuously investing in R&D (₹160 crore over FY13-FY17) which has strengthened its client relationship and helped gain edge over other low cost manufacturers to integrate itself with entire value chain of contract manufacturer.
“Hikal is expected to deliver on management expectation led by strong traction in all business verticals, focus on R&D over the last five years and extension of existing customer relationship with global innovator companies. We expect Hikal to deliver revenue CAGR of 13.5 per cent over FY20E. Hikal is also expected to deliver operating margin expansion of about 150 bps over the next three years led by better product mix and operating efficiencies.
Coupled with increasing revenue, nettre margins and lower finance cost Hikal is expected to approximately double the PAT over FY20E. We value Hikal at 20x FY20E and 10x EV/EBITDA to arrive at the Target Price of 320.
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