Firstcall recommend Hester Biosciences for target of 720, FY15 net profit up 45%

1. CMP 629.00
Target Price 720.00
ISIN: INE782E01017
JUNE 20th
2015
HESTER BIOSCIENCES LTD
Result Update (PARENT BASIS): Q4 FY15
BUY
Index Details
Stock Data
Sector Pharmaceuticals
BSE Code 524669
Face Value 10.00
52wk. High / Low (Rs.) 740.00/142.50
Volume (2wk. Avg.) 1111
Market Cap (Rs. in mn.) 5350.90
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS FY15A F16E FY17E
Net Sales 900.37 1026.42 1149.59
EBITDA 264.97 309.33 343.94
Net Profit 145.82 146.89 161.46
EPS 17.14 17.27 18.98
P/E 36.70 36.43 33.14
Shareholding Pattern (%)
1 Year Comparative Graph
HESTER BIOSCIENCES LTD S&P BSE SENSEX
SYNOPSIS
Hester Biosciences Ltd manufactures and markets
animal vaccines and health products.
In Q4 FY15, company’s net profit jumps to Rs. 41.28
mn against Rs. 39.15 mn in Q4 FY14, an increase of
5.44%.
Revenue for the quarter rose by 6.93% to Rs. 233.61
mn from Rs. 218.48 mn, when compared with the
prior year period.
During Q4 FY15, EBIDTA is Rs. 73.20 mn as against
Rs. 103.29 mn in the corresponding period of the
previous year.
During the quarter, PBT increased by 11.96% to Rs.
58.30 mn from Rs. 52.07 mn over the corresponding
quarter of previous year.
EPS of the company stood at Rs. 4.85 a share during
the quarter as against Rs. 4.60 over previous year
period.
Hester Biosciences Ltd has recommended a dividend
of Rs 3.10 per equity share of Rs 10 each (31%) for
the financial year 2014-15.
Net Sales has been reported at Rs. 900.37 mn for the
year ended 31 March 2015 as compared to Rs.
690.48 mn for the previous year, registering a
growth of 30%.
Net Profit for FY14-15 has been reported at Rs.
145.82 mn as compared to Rs. 100.88 mn for the
previous year, registering a growth of 45%.
Net Sales and PAT of the company are expected to
grow at a CAGR of 15% and 14% over 2014 to 2017E
respectively.
PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
Hester Biosciences Ltd 629.00 5350.90 17.14 36.70 6.22 31.00
Albert David Ltd 298.00 1700.70 24.01 12.41 1.63 55.00
SMS Pharmaceuticals Ltd 599.75 5077.00 41.63 14.41 1.98 20.00
Claris Lifesciences Ltd 249.20 13598.30 22.38 11.13 1.26 0.00

2. QUARTERLY HIGHLIGHTS (PARENT BASIS)
Results Updates- Q4 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 Mar, 2015.
The company’s net profit jumps to Rs. 41.28 million against Rs. 39.15 million in the corresponding quarter
ending of previous year, an increase of 5.44%. Revenue for the quarter rose by 6.93% to Rs. 233.61 million from
Rs. 218.48 million, when compared with the prior year period. Reported earnings per share of the company
stood at Rs. 4.85 a share during the quarter as against Rs. 4.60 over previous year period. Profit before interest,
depreciation and tax is Rs. 73.20 million as against Rs. 103.29 million in the corresponding period of the previous
year.
Break up of Expenditure
Months Mar -15 Mar -14 % Change
Net Sales 233.61 218.48 6.93%
PAT 41.28 39.15 5.44%
EPS 4.85 4.60 5.44%
EBITDA 73.20 103.29 -29.13%
Break up of Expenditure
(Rs in millions)
Q4 FY15 Q4 FY14
%
CHNG
Cost of Material consumed 37.38 33.66 11%
Purchase of Stock in Trade 5.64 11.02 -49%
Employee Benefit Expenses 39.95 31.53 27%
Depreciation & Amortization
Expense
27.57 15.4 79%
Other Expenses - Mfg.exp. 31.49 23.22 36%
Other Exp - Selling, Admn. 48.62 32.55 49%

3. Segment Revenue
Latest updates
• Hester Biosciences Ltd has recommended a dividend of Rs 3.10 per equity share of Rs 10 each (31%) for the
financial year 2014-15.
• During the year, Company has made further investment by way of equity in wholly owned Subsidiary
companies to the extent of Rs 50.21 million.
Commercialized R&D Projects
Development of Gumboro vaccine
Development of Thermo-stable Newcastle Disease vaccine
Development of freeze dried probiotic for poultry
On-going R&D Projects
Monitoring of poultry diseases
Development of new generation recombinant poultry vaccines
Development of ELISA & Lateral flow diagnostic kits

4. COMPANY PROFILE
Hester Biosciences Limited is one of India’s leading animal health care companies. Being the country’s 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 Hester’s 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 Asia’s 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 Company’s product portfolio comprises of over 45 vaccines and over 70 health products, which are
distributed through Hester’s all-India distribution network. Exports are currently to eight countries with the
registration process on in over 20 countries.
Hester’s key strength is embedded in its cutting-edge research and development capabilities. The Company’s
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 2014-15, the company reported revenue of INR 900 million with a net profit of INR 146
million.

5. FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at March 31, 2014-2017E
FY14A FY15A FY16E FY17E
SOURCES OF FUNDS
Shareholder's Funds
Share Capital 85.07 85.07 85.07 85.07
Reserves and Surplus 674.65 775.21 922.10 1069.64
1. Sub Total - Net worth 759.72 860.28 1007.17 1154.71
Non Current Liabilities
Long term Borrowings 61.95 144.91 162.30 176.91
Deferred Tax Liabilities 49.26 53.81 57.04 59.89
Other Long term Liabilities 0.14 0.00 0.00 0.00
2. Sub Total - Non Current Liabilities 111.35 198.72 219.34 236.80
Current Liabilities
Short term Borrowings 262.55 200.64 172.55 151.84
Trade Payables 44.64 45.72 48.46 50.89
Other Current Liabilities 71.88 62.17 65.90 69.20
Short Term Provisions 38.03 39.23 40.01 41.62
3. Sub Total - Current Liabilities 417.10 347.76 326.93 313.54
Total Liabilities (1+2+3) 1288.17 1406.76 1553.44 1705.05
APPLICATION OF FUNDS
Non-Current Assets
Fixed Assets
Tangible assets 505.84 522.76 554.13 581.83
Intangible assets 0.93 2.88 3.17 3.42
Capital Work in Progress 131.51 142.74 154.16 164.95
a) Sub Total Fixed Assets 638.28 668.38 711.45 750.20
b) Non-current investments 36.33 86.53 102.97 119.45
c) Long Term loans and advances 80.58 85.27 89.53 94.91
1. Sub Total - Non Current Assets 755.19 840.18 903.96 964.56
Current Assets
Inventories 355.89 291.08 314.63 342.05
Trade receivables 140.62 182.92 223.16 265.56
Cash and Bank Balances 10.60 42.98 54.15 64.99
Short-terms loans & advances 25.87 49.60 57.54 67.89
2. Sub Total - Current Assets 532.98 566.58 649.48 740.49
Total Assets (1+2) 1288.17 1406.76 1553.44 1705.05

6. Annual Profit & Loss Statement for the period of 2014 to 2017E
Value(Rs.in.mn) FY14A FY15A FY16E FY17E
Description 12m 12m 12m 12m
Net Sales 690.49 900.37 1026.42 1149.59
Other Income 7.73 3.29 3.45 3.66
Total Income 698.22 903.66 1029.88 1153.25
Expenditure -437.19 -638.69 -720.55 -809.31
Operating Profit 261.03 264.97 309.33 343.94
Interest -64.34 -44.07 -50.24 -56.27
Gross profit 196.69 220.90 259.09 287.67
Depreciation -53.78 -52.91 -60.32 -66.95
Exceptional Items 0.00 26.53 0.00 0.00
Profit Before Tax 142.91 194.52 198.77 220.72
Tax -42.03 -48.70 -51.88 -59.26
Net Profit 100.88 145.82 146.89 161.46
Equity capital 85.07 85.07 85.07 85.07
Reserves 674.65 775.21 922.10 1069.64
Face value 10.00 10.00 10.00 10.00
EPS 11.86 17.14 17.27 18.98
Quarterly Profit & Loss Statement for the period of 30th Sep, 2014 to 30th June, 2015E
Value(Rs.in.mn) 30-Sep-14 31-Dec-14 31-Mar-15 30-Jun-15E
Description 3m 3m 3m 3m
Net sales 214.90 218.83 233.61 247.63
Other income 0.17 0.22 2.74 1.37
Total Income 215.07 219.05 236.35 249.00
Expenditure -159.80 -155.53 -163.15 -172.10
Operating profit 55.27 63.52 73.20 76.90
Interest -10.91 -9.62 -13.86 -15.94
Gross profit 44.36 53.90 59.34 60.96
Depreciation -8.53 -8.53 -27.57 -21.50
Exceptional Items 0.00 0.00 26.53 0.00
Profit Before Tax 35.83 45.37 58.30 39.45
Tax -8.40 -11.65 -17.02 -10.30
Net Profit 27.43 33.72 41.28 29.16
Equity capital 85.07 85.07 85.07 85.07
Face value 10.00 10.00 10.00 10.00
EPS 3.22 3.96 4.85 3.43

7. Ratio Analysis
Particulars FY14A FY15A FY16E FY17E
EPS (Rs.) 11.86 17.14 17.27 18.98
EBITDA Margin (%) 37.80% 29.43% 30.14% 29.92%
PBT Margin (%) 20.70% 21.60% 19.37% 19.20%
PAT Margin (%) 14.61% 16.20% 14.31% 14.04%
P/E Ratio (x) 53.04 36.70 36.43 33.14
ROE (%) 13.28% 16.95% 14.58% 13.98%
ROCE (%) 29.04% 26.36% 27.54% 27.70%
Debt Equity Ratio 0.43 0.40 0.33 0.28
EV/EBITDA (x) 21.70 21.34 18.21 16.32
Book Value (Rs.) 89.31 101.13 118.39 135.74
P/BV 7.04 6.22 5.31 4.63
Charts

8. OUTLOOK AND CONCLUSION
At the current market price of Rs. 629.00, the stock P/E ratio is at 36.43 x FY16E and 33.14 x FY17E
respectively.
Earnings per share (EPS) of the company for the earnings for FY16E and FY17E are seen at Rs. 17.27 and Rs.
18.98 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 14% over 2014 to 2017E
respectively.
On the basis of EV/EBITDA, the stock trades at 18.21 x for FY16E and 16.32 x for FY17E.
Price to Book Value of the stock is expected to be at 5.31 x and 4.63 x for FY16E and FY17E respectively.
We recommend ‘BUY’ in this particular scrip with a target price of Rs. 720.00 for Medium to Long term
investment.

9. 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 LIVESTOCK SECTOR
India possesses the largest livestock population in the world and accounting for a fifth of the world’s 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%, India’s livestock population is likely to grow from 280 million to about 312
million by 2015. Cattle constitute 60 percent of India’s 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 India’s total livestock population followed by Karnataka, Madhya Pradesh, Maharashtra, Tamil Nadu
and West Bengal.
India is the world’s largest milk producer with an annual output of around 116 million tonnes. With an annual
growth rate of 4%, India’s milk production accounts for 16% of the total global output. The Union Agriculture

10. Ministry’s 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 world’s 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.
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