INITIATING COVERAGE

FREDUN PHARMACEUTICAL LIMITED

Export based pharmaceuticals, now capitalizing the domestic & niche markets

Rating: Buy Date: 30th January, 2023

Target price: INR 1642 (~50% upside) Market information

The Company has been into exports of general pharmaceutical Particulars

Exchange: BSE only
formulations since more than a decade with strong sales CAGR of ~35%. SENSEX: 59,500
The Company is diversifying into niche and high growth business CMP: INR 1,087
Mcap: INR 491 Crs
segments such as pet-care, Nutraceuticals, and cosmeceuticals
formulations. Also, the Company is planning to launch its products Corporate structure
As at 31 Dec, 2022
locally. With the expansion & development of new brands and catering to Equity %
existing export business with constant growth, the Company targets to shareholders
achieve top line of ~ INR 500 Crores with an EBIITDA margin of ~15% Public 50.3%
FII 0.0%
by 2025. To cater this expansion, the Company is planning to raise equity DII 1.7%
of more than INR 30 Crores by current fiscal. Also, we may expect M&A Promoters 48.0%
opportunity that the Company may undertake to grow inorganically. Financial over view
INR Crs
With the current level of operations, the Company could require ~INR 100 Particulars FY22
Crores of capital investments in its factory to achieve revenue targets and Revenue 224.5
YoY % growth ~67%
expansion.
EBITDA 20.5
Relative performance with BSE Sensex EBITDA % 9.1%
ROE 9.3%
Stock performance

Particulars
1 year return -1.9%
3 year return 441%
5 year return 662%
ATH 1428
52 week high 1428
52 week high 675
P/E Ratio 50.52
P/B Ratio 5.55
EV/ EBITDA 32.19

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 ABOUT THE INDUSTRY

India’s presence and contribution to global pharmaceuticals Markets:

India plays an important role in the global pharmaceuticals by exporting drug formulations & biologicals,
which contributes ~77% of the total pharmaceuticals exports out of India. India ranks third in the world in
terms of volume and is the fourteenth largest in terms of value.

India is an emerging international manufacturing hub for generic medicines due to its large base of raw
materials and availability of trained workforce. The USP of the Indian pharmaceutical formulation
manufacturing industry is affordable price and high quality and because of this, she is also sometimes called
the “Pharmacy of the World”. The total export for 2021-22 is US$ 24 billion in (which more than double as
compared to 2013-14).

Primary business segment identification:

General
Pet-care Cosmeceutical Nutraceutical
pharmaceutical
pharmaceutical formulations formulations
formulations

Geographical segment identification: Customer segment identification:

Export Domestic B2B2C B2B B2C

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Domestic pharmaceutical industry:

The domestic pharmaceutical industry is expected to grow three-fold in the coming decade. Further, the
growth during 2021 to 2024 is going to translate from US$ 42 Billion to US$ 65 Billion and then by
US$ 130 billion by 2030. During FY22, the sector grew by ~11% in FY22, fueled by demand from emerging
and domestic markets. The rationale behind India’s growth story is primarily its
technological capabilities in line with global benchmarks and process efficiency along with a high-quality
workforce and manufacturing standards because of which the operating costs are to remain low. Government
is taking several positive policy measures to change the business environment, thus building the foundations
for Indian Cos in sustainable growth in the global pharmaceutical industry.

15%
Y-o-y growth %

10%
9%

5%

2%

2018 2019 2020 2021 2022

Further, Pharmaceutical formulation industry can be segmented into niche categories such as pet, and
cosmetic among others.

Pet-pharmaceutical industry:

The global pet care market contributes US$ 261 billion during 2022 which will further grow at a CAGR of
6% over the next 5 years. The market expansion will be primarily on account of pet food and treats, pet
lifestyle products, over-the counter drugs and veterinary care product. The growth is being fueled by increase
in purchasing power of consumers globally.

Indian pet-pharmaceutical industry aggregates to around US$ 590 million in 2022, with a CAGR of ~19% by
2025. Due to the shift in industry's perspective where people focus on being responsible pet parents instead
of merely being pet owners, India is going to be one of the world's fastest expanding marketplaces for pet
care.

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Cosmetic-pharmaceutical industry:

The global cosmeceuticals market size contributes ~US$ 55 billion in 2022 which is expected to grow at a
CAGR of 8.4% during next 5 years. Key drivers for the growth of market includes growing skin disorders
around the world, inclination of dermatologists towards prescribing cosmetic products and increasing number
of market players to cater to this demand. As per research in 2022, out of the dermatologic prescriptions
given globally, 40% consisted of cosmeceuticals. India ranks fourth globally in terms of highest revenue
generated from the beauty and personal care market.

Indian cosmetics market stands at US$ 13.2 billion which is projected to outperform global market with a
CAGR of 16% in next 5 years. Changing lifestyle, growing disposable income, emergence of e-commerce,
Population demographics and increasing preference for good skin care and other grooming products among
youth are expected to be major contributors towards this growth.

Nutrition-pharmaceutical industry:

The domestic consumer health/ nutrition products market (historical 5 years CAGR ~14% with Market size
of INR 1 trillion) can be segmented into Health and wellness foods (~70% market) and Dietary supplements
(~30% market). Consumers have been actively searching for ways to enhance the purpose of basic foods and
prefer brands with incremental nutrients like vitamins, fiber, protein, calcium, and minerals. Thus, the market
can cater to this demand by offering products that are "low sugar", "baked not fried" and “protein shakes”.
On the other hand, dietary supplements consist of herbal supplements, proteins, vitamins, and minerals. The
segment is witnessing rapid growth, with COVID-19 acting as a key catalyst given the increased awareness
towards preventive health and well-being and growing lifestyle diseases.

Herbal supplements Proteins

Nutricuetical

Vitamins and Minerals Others

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 ABOUT THE COMPANY

Incorporation story:

Promoted by Mr. Nariman Medhora and his wife Mrs. Daulat Medhora, the Company started to deal into
trading of general pharmaceuticals which over the time evolved into manufacturing and achieved presence in
more than 40 countries in export industry. Together they have experience of more than three decades in the
pharmaceutical formulations business and have been instrumental in research & development work and
manufacturing of new products. With the retirement of Mr. Nariman Medhora, his son, Mr. Fredun Medhora
joined the business in 2010.

In 1994, the promoters set up an export oriented pharmaceutical unit employing about 150 persons in the
backward areas of Palghar in the name of Fredun Pharmaceuticals Ltd. Since 1996 the Company achieved
WHO compliant status and started exporting its pharmaceutical formulations globally. Now the Company
exports to more than 40 countries with a strong cliental base which are there for more than a decade.

Background of the family:

Mrs. Daulat Medhora, Chairman:

She holds a PhD in Chemistry from UDCT and was awarded Lady Tata Scholarship for her R&D work. She
started her career as an R&D Manager in a leading Company and developed manufacturing processes of
several drugs and drug intermediaries. She is a Life member of Indian Pharmaceuticals Association, in the
year 2001 & was awarded with Rashtriya Rattan Award by Global Economic Council in November 2008.

Mr. Fredun Medhora, Managing director:

He holds Masters in Business Administration from Cardiff University- UK and is Graduate with honours of
Magma Cum Laude in Business Entrepreneurship from Plattsburgh University, New York. He was appointed
as the Managing Director of the Company since 2014. He was again re appointed as the Managing Director
for the period from 15th October 2020 and has been entrusted with the entire powers of the management of
the Company.

Mr. Nariman Medhora, Non-executive and non-independent director

He has rich experience and knowledge of pharmaceutical industry and has contributed substantially to the
growth of the Company. He is associated with the Company since its incorporation and has qualified
Bachelor of Science from Gujarat University.

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About Fredun Pharmaceuticals Limited

Fredun Pharmaceuticals Limited ('the Company' or ‘FPL’) is a public company domiciled and headquartered
in India. It is incorporated under Companies Act, 1956 in 1987 by Mr. Nariman Medhora and his wife, Dr.
Daulat Medhora and its shares are listed on Bombay Stock Exchange (BSE).

The company manufactures pharmaceutical formulations such as tablets, syrups, capsules, and ointments
with export to more than 40 countries. Product basket includes multiple therapeutic classes such as anti-
diabetics, anti-retroviral and anti-hypertensive. The manufacturing unit is in Palghar, Maharashtra, and the
corporate office in Mumbai.

The Company ventured into manufacturing of dietary /herbal supplements, nutraceuticals, and other
healthcare products along with Animal Healthcare products also through its group Companies Fredun
healthcare Pvt. Ltd. & Fredna enterprises. With products ranging from allopathic formulations to on field
diagnostic kits, Company's main aim is to be a holistic healthcare provider.

FPL has offerings in 23 therapeutic pharmaceutical manufacturing classes (including anti-diabetics, anti-
retroviral and anti-hypertensive) which are being exported to the countries in South Asia, Africa,
Commonwealth of Independent States, and Latin America. The wide product basket and geographical
presence provide diversity in the revenue profile. Addition of new product registrations (more than 130
project registrations in overseas market) and foray into new product categories and markets help in consistent
scaling up of operations.

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Business segments

General pharmaceuticals

The Company primarily exports pharmaceutical (General) formulations with more than 300 products
registered with foreign governments and more than 700 products under registration. Over the years, the
Company has been formulating products under the guidance of Mrs. Daulat Medhora and have been
successfully registering them with the foreign government. The Company has organically grown globally
and is expecting increased penetration from existing customers world-wide. Moreover, the Company has
successfully tied-up with a Company in UAE for tech-transfer and for Manufacturing/Direct Compressible
Granules, thereby increasing operational efficiency to deliver products to its customers timely.

The revenue in the segment grew steadily over the last decade from ~INR 15 Crores in 2013 to ~INR 250
Crores in 2023 (expected) giving a CAGR of 32%. However, the margins are fairly thin (i.e., ~5%
Sustainable EBITDA level) w.r.t other business segment i.e., Pet care, Nutraceuticals and Cosmeceuticals.

Exports across globe:

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Also, in September 2021, the Company launched into trade generic segment in India by launching 160
products into the distribution across various target medicine segments (including anti diabetics, antacids,
antiemetics, anti-bacterial, anti-hypertensives, anti-fungal, anti-allergic, calcium supplements and
inflammatory creams/ointments et al.). Now the Domestic division of this segment have presence across
multiple states as of fiscal year 2023.

The Company has more than 900 products under registration (out of which ~150 products have been
approved) and order book of 300% of current inventory in the current fiscal period.

Pet pharmaceuticals

The Company has recently entered pet-care pharmaceutical and is planning to outgrow into this segment over
the coming decades. Currently this segment contributes less than INR 10 Crores to the revenue from
operations. Focus of pet-care pharmaceutical segment of the Company is Domestic markets only.

FREOSS is the brand representing pet-pharmaceutical products. The product portfolio comprises of
Microcrystalline Hydroxyapatite Complex (MCHC) based supplements, animal feed additives and other
animal healthcare formulations for pets, poultry, and cattle. The Company specializes in manufacturing of
formulations made from (MCHC) and happens to be the largest manufacturer of (MCHC) in India. MCHC's
efficacy is time-tested and clinically proven for more than 60 years.

List of products launched:

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Pet-care performance

- Grand launch of pet grooming products in October 2022

- Management target to launch 76+ products across 16 states in 2023
- Launch of 25 pharma veterinary products
- Added Food products to the portfolio with seven different food products for vets
- Expected turnover of INR 20 Crores in 2023 (~100% YoY growth)

Cosmeceuticals

This is one of the new key segments where the Company has launched its pharmaceutical products. It is
pioneer in launching Emu Oil-infused product range in India, under its brand BIRD n BEAUTY or BnB. The
Company offers a unique line of luxury personal care formulae with fully purified Emu Oil, providing their
customers with the Emu Oil products of highest quality. The Emu Oil formulations have been made after
years of Research and Development at the Company's own facility.

Launched in 2022, the products cater to skin care, hair care and body care. The Company is marketing the
products mainly through e-commerce platforms and is targeting the skin and hair care segments. This
segment on an average is going to contribute equally in the exports and domestic sales.

Cosmeceutical performance

- State-of-the-art Lotion manufacturing unit has been set up at our Palghar, Production to commence by
end of November 2022 at capacity utilization of 70%
- State-of-the-art balm manufacturing unit has also been operations.
- Supplied the first order of Cosmeceuticals to Nigeria and French West Africa

Nutraceuticals

The Company operates Nutraceuticals segment under brand Fredun Nutrition. From 2022 THE Company
become operational into Nutraceuticals and launched a range of personal health care products with natural
active ingredients devoid of any poisonous heavy metals or synthetic additives which are objectionable.
Every product manufactured at the Company's facility is at par with world- class quality standards and are
backed by years of research ensuring efficacy and quality, per management.

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Nutraceutical performance

- The Company signed a contract with GCC region for Nutraceuticals and Human Feed supplements
with the revenue expectations of US$ 2.5 million p.a. from 2023-24

Current and potential value comparison amongst the business segments:

General
Current value

(export)

Nutrition
& Pet-care
Cosmetics
(Domestic)

Potential value

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Manufacturing capabilities and capacities:

The Company has successfully made arrangements for tech-transfer and manufacturing rights and
formulations. These arrangements will be completed by the fiscal 2023. This will able the Company to
reduce the supply time and cater customer globally at a more efficient level.

The Company has state-of-art manufacturing plant at Palghar (Maharashtra) with ~80,000 sq ft carpet area.
The plant is WHO complaint, with more than 500 job workers and 350 employees looking after the
operations of the plant and the Company as a whole respectively.

Following is the capacity utilization of various production processes at manufacturing unit in Palghar:

TABLET GRANULATION CAPACITY TABLET COMPRESSION CAPACITY

16,000 40
14,000 35
12,000 30
KG per day

Million per day

10,000 25
8,000 20
6,000 15
4,000 10
2,000 5
- -
2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022

TABLET COSTING CAPACITY PELLETS CAPACITY

40 2,000
Million per day

30 1,500
KG per day

20 1,000

10 500

- -
2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022

TOPICALS CAPACITY DRY SYRUP BOTTLE CAPACITY

2,00,000 1,20,000
1,00,000
1,50,000
Units per day
Tubes per day

80,000
1,00,000 60,000
40,000
50,000
20,000
- -
2019 2020 2021 2022 2017 2018 2019 2020 2021 2022

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DC GRNULES CAPACITY CAPSULE CAPACITY

16,000 10
14,000
8
12,000
KG per day

Million per day

10,000 6
8,000
6,000 4
4,000
2
2,000
- -
2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022

BALM CAPACITY LOTION CAPACITY

2,50,000 4,00,000

Bottles per day

Units per day

2,00,000
3,00,000
1,50,000
2,00,000
1,00,000
1,00,000
50,000

- -
2022 2023 2024 2022 2023 2024

The plant is operational at a capacity utilization rate of 50% to 60%. With a maintenance and upgradation
cost of ~INR 1 Crore, the Company can make sales of INR 500 Crores at the existing infrastructure.

The Company has started State-of-the-art Lotion and balm manufacturing unit which is expected to produce
1,50,000 unit of balm and lotion daily in 2023.

Contract manufacturing:

Other than existing owned manufacturing facility, the Company is under process to manufacture its
formulations under third party manufacturing facilities in UAE. This will help the Company to reduce its
delivery time and serve the customers globally with efficiency.

(Intentionally left blank)

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Existing growth strategy

1. The Company has been into manufacturing of general pharmaceutical formulations since
decades and have organically grown at a CAGR of 35% since last 10 years. This growth has
been achieved by inhouse R&D, product registrations and approvals with foreign government,
penetrating more with the existing customers and very insignificant marketing costs.

2. The entry of the Company into three new segments (Pet-care, Cosmeceuticals and
Nutraceuticals) is the recent move to diversify from its existing export oriented general
pharmaceutical market.

3. Over the coming five years, the Company is expected to grow exponentially into the three new
segments with significant focus on Indian consumer markets. These are high growth, high
margin areas which will drive the investors wealth in our opinion.

4. To cater the expansion requirement, heavy capital expenditure will be required to build the
advanced infrastructure at the existing plant in Palghar. We can expect some equity issues or
short-term borrowings as well (to manage working capital). However, we can also see strategic
Merger & Acquisition opportunities that the Company may evaluate to suite the expansion.

5. Since there are more than 700 products (more than 2x of approved products) under registration
the Company anticipates having a constant growth in the existing general pharmaceutical export
business

6. The Company is planning to steadily shift the focus from exports of general pharmaceuticals
formulations to domestic pet-care pharmaceutical formulations to enter into
high growth- high margin industry.

7. Brand development under focus: The Company is developing various brands to cater demand in
domestic B2C industry, thus establishing its presence into highly unorganized sector.

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 FINANCIAL OVERVIEW

Detailed financial statements

Profit and loss account detailed

INR Lakhs % to total revenue
Particulars FY 18 FY 19 FY 20 FY 21 FY 22 FY 20 FY 21 FY 22
Revenue from operations 5,807 9,541 11,030 13,155 22,174 97% 97% 98%
Other operating income - 161 247 234 272 2% 2% 1%
Other income 164 38 52 140 163 0% 1% 1%
Total Income 5,971 9,740 11,329 13,529 22,609 100% 100% 100%
0%
Cost of materials consumed 4,298 6,596 8,518 10,060 17,645 75% 74% 78%
Cost of materials consumed (R&D) - - 67 47 66 1% 0% 0%
Changes in inventories (347) (608) (504) 117 (1) -4% 1% 0%
Manufacturing & Service Cost 268 418 529 477 715 5% 4% 3%
Gross profit 1,752 3,334 2,719 2,827 4,183 24% 21% 19%

Employee benefit Exp. 519 804 895 866 1,066 8% 6% 5%

Finance Cost 194 310 441 416 467 4% 3% 2%
Depreciation and amortisation 129 133 188 200 216 2% 1% 1%
Operating and other expenses 647 1,464 940 898 1,565 8% 7% 7%
Payment to Auditors 8 5 10 10 0% 0% 0%
Exceptional item - - - 116 - 0% 1% 0%
Profit before tax from 264 616 249 321 860 2% 2% 4%
continuing operations

Less: Tax Expenses:

Current Tax 93 172 44 76 221 0% 1% 1%
Deferred Tax (4) (2) 15 44 5 0% 0% 0%

PAT 175 446 190 201 634 2% 1% 3%

Quarterly Profit and loss statement

INR Lakhs FY21 FY22 FY23
Particulars 30-Jun-20 30-Sep-20 31-Dec-20 31-Mar-21 30-Jun-21 30-Sep-21 31-Dec-21 31-Mar-22 30-Jun-22 30-Sep-22
Sales 1,374 3,360 4,557 4,238 4,525 5,476 5,423 7,185 4,842 7,032
Expenses 1,247 3,020 4,252 3,956 4,366 5,068 4,988 6,646 4,455 6,352
Operating Profit 127 340 305 282 159 408 435 539 387 680
OPM 9% 10% 7% 7% 4% 7% 8% 8% 8% 10%

Other Income - (116) - - - - - - - -

Depreciation 46 49 53 52 51 52 55 58 65 72
Interest 77 92 119 129 64 105 125 172 191 186
PBT 4 83 133 101 44 251 255 309 131 422
Tax - - - 28 12 67 68 79 36 106
PAT 4 83 134 73 33 184 187 230 94 315

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Balance sheet as at
INR Lakhs
Particulars 31-Mar-18 31-Mar-19 31-Mar-20 31-Mar-21 31-Mar-22
Equity Share Capital 343 399 399 399 443
Reserves 1,874 3,500 3,733 3,908 6,342
Borrowings 990 1,927 3,490 3,964 5,276
Other Liabilities 4,719 4,665 6,515 7,891 6,638
Total 7,926 10,491 14,137 16,162 18,699

Net Block 1,628 3,135 3,097 3,035 3,234

Capital Work in Progress 1,115 - - - -
Investments - 1 5 6 6
Receivables 1,526 1,778 3,897 4,108 9,027
Inventory 1,843 4,078 5,046 6,757 4,646
Cash & Bank 145 147 306 113 207
Other assets 1,669 1,352 1,786 2,143 1,579
Total 7,926 10,491 14,137 16,162 18,699

Working Capital 464 2,690 4,520 5,230 8,821

Debtors 1,526 1,778 3,897 4,108 9,027
Inventory 1,843 4,078 5,046 6,757 4,646

Return on Equity 8% 11% 5% 5% 9%

Return on Capital Emp 17% 21% 10% 10% 13%

Cash flow statement extract

INR lakhs
Cash flows 31-Mar-18 31-Mar-19 31-Mar-20 31-Mar-21 31-Mar-22
Operating Activity 1,730 84 (1,064) 17 (238)
Investing Activity (821) (525) (149) (139) (413)
Financing Activity (838) 443 1,373 (71) 747
Net Cash Flow 70 1 159 (193) 96

The Company is currently performing at top of ~INR 250 Crores (TTM basis) with gross profit of ~20%.
The revenue is primarily driven from general pharmaceutical formulation business. However, the Company
is diversifying into three new segments which contributes ~INR 20 Crores. Revenue of Q2 FY23 grew ~28%
and operating margins increased by ~200 basis points w.r.t. corresponding quarter in FY22.Also, PAT grew
more than 2/3rd in Q2 FY23.

The Company has sales growth of ~35% CAGR in last decade and have reinvested 100% of the operating
cash flows into its fixed assets. Also, Reserves belonging to shareholders have compounded significantly at
the rate of ~32% during the last 5 years.

However, working capital requirement to cater the sales is growth had been significant leading to high levels
of inventory and debtors outstanding

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Quarterly performance comparison:

FY22 FY23
8,000 600 8,000 800
7,000 7,000 700
500
6,000 6,000 600

Operating profit

Operating profit
400
5,000 5,000 500

Revenue
Revenue

4,000 300 4,000 400

3,000 3,000 300

200
2,000 2,000 200

100 1,000 100

1,000
- -
- -
Q1 Q2
Q1 Q2 Q3 Q4

Revenue Operating profit Revenue Operating profit

Quaterly performance
INR Lakhs
Particulars Q1 Q2 Q3 Q4 Total
Revenue
FY21 1,374 3,360 4,557 4,238 13,529
FY22 4,525 5,476 5,423 7,185 22,609
FY23 4,842 7,032 - - 11,874
q-o-q % Growth 7% 28%

Operating profit
FY21 127 340 305 282 1,054
FY22 159 408 435 539 1,541
FY23 387 680 - - 1,067
q-o-q % Growth 143% 67%

PBT
FY21 4 83 133 101 321
FY22 44 251 255 309 859
FY23 131 422 - - 553
q-o-q % Growth 198% 68%

Second quarter of 2023 witnessed strong growth in sales as well as profitability. Primary reason for increase
in sales include increased Exponential growth in sales in the new segments (given the small base), new
product launches and strong export in existing segment. Visibility in Profitability comes on account of
economies of scale and new entry into high margin high growth segments (Pet-care, Nutraceuticals and
Cosmeceuticals).

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Forecasted financial statements

Fredun Pharma
Profit and loss account detailed
INR Lakhs
Particulars FY 20 FY 21 FY 22 FY 23 (E) FY 24 (E) FY 25 (E) FY 26 (E) FY 27 (E)
Revenue from operations 11,277 13,389 22,446 28,000 36,000 48,000 59,600 71,180
COGS 8,610 10,702 18,426 21,250 26,900 35,080 42,248 49,364
Gross profit 2,667 2,688 4,020 6,750 9,100 12,920 17,352 21,816

Employee benefit Exp. 895 866 1,066 1,279 1,534 1,688 1,857 2,042
Marketing cost - - - 1,000 1,120 1,040 1,115 1,228
Other indirect expenses 945 1,025 1,575 2,240 2,520 2,880 2,980 3,559
EBITDA 827 798 1,380 2,231 3,926 7,312 11,400 14,987

Other income 52 140 163 280 360 480 596 712

Finance Cost 441 416 467 857 696 549 356 140
Depreciation and amortisation 188 200 216 1,069 1,209 1,449 1,620 1,758
PBT 249 321 860 585 2,380 5,794 10,020 13,801

Taxes 59 119 226 188 764 1,860 3,216 4,430

PAT 190 201 634 397 1,616 3,934 6,804 9,371

The chart below highlights year on year forecasts for business segment of the Company. Sales CAGR from 2022 to
2027 is expected to be ~25%. Substantial margin improvement can be achieved by 2027 due to new business segments.

Segment-wise estimated revenue & EBITDA %

1,00,000 25.0%

80,000 20.0%

EBITDA %
INR Lakhs

60,000 15.0%

40,000 10.0%

20,000 5.0%

- 0.0%
FY23 (E) FY24 (E) FY25 (E) FY26 (E) FY27 (E)

General pharmaceutical Pet-care pharmaceutical Nutraceuticals Cosmeceuticals EBITDA %

In FY20, Company has an export of 70% of the

Target exports by 2027
total sales. However as per the company’s
diversification into domestic pet-care and other 0% 20% 40% 60% 80% 100%
segment, it targets to achieve 55% sales from the Domestic Export
domestic market itself by 2027.

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Fredun Pharma
Balance sheet as at
INR Lakhs Estimate
Particulars FY23 (E) FY24 (E ) FY25 (E) FY26 (E) FY27 (E)
Net worth 17,082 18,698 22,633 29,436 38,807
Borrowings 7,142 5,801 4,571 2,969 1,166
Trade payables 5,822 7,370 8,650 10,417 12,172
Other Liabilities 565 647 701 744 854
Total 30,611 32,516 36,555 43,566 52,998

Net Block 6,931 6,722 6,939 6,573 5,837

Investments 6 6 6 6 6
Receivables 11,507 13,808 15,781 19,595 19,501
Inventory 10,479 11,055 12,494 15,047 16,229
Cash & Bank 1,128 206 375 1,154 10,001
Other assets 560 720 960 1,192 1,424
Total 30,611 32,516 36,555 43,566 52,998

Cash flow statement

INR Lakhs Estimated
Particulars FY 23 (E) FY 24 (E) FY 25 (E) FY 26 (E) FY 27 (E)
Opening fund balance 207 1,128 206 375 1,154

Cash Flow From Operating Activity (4,433) 2,115 3,614 3,991 11,812
Cash Flow From Investing Activity (4,766) (1,000) (1,667) (1,253) (1,022)
Cash Flow From Financing Activity 10,120 (2,037) (1,779) (1,959) (1,943)
Net cash flo during the year 921 (923) 169 779 8,848

Cash and bank balance 1,128 206 375 1,154 10,001

Shareholding structure of the Company over the quarters

% Equity shareholding
Particulars Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22
Promoters: 52.0 52.0 52.0 51.3 51.3 51.1 51.1
Daulat Medhora 33.6 33.6 33.6 31.4 31.4 31.3 31.3
Nariman Medhora 14.4 14.4 14.4 16.2 16.2 16.2 16.2
Fredun Medhora 4.0 4.0 4.0 3.6 3.6 3.6 3.6

DIIs: 1.9 1.9 7.2 1.7 1.7 1.7 1.7

Bank of India 1.9 1.9 1.9 1.7 1.7 1.7 1.7
Bank of India - - 5.3 - - - -

Public: 46.1 46.1 40.8 47.0 47.0 47.3 47.3

Nikhil Vora 5.9 5.9 5.9 7.7 7.7 7.6 7.4
S S Seema 1.4 1.1
Rudra Murthy B V . 1.0 1.0 1.0
Arun Kumar Mukherjee 1.0 1.0 1.0 1.0
Others 37.8 38.1 33.9 38.4 38.4 38.6 38.9

Total 100 100 100 100 100 100 100

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Performance indicators:

Inventory turnover Asset turnover

8,000 6.00 3,250 8.00
5.00 3,200
6,000 6.00
4.00 3,150
INR lakhs

INR lakhs
3,100
4,000 3.00 4.00
3,050
2.00
2,000 3,000 2.00
1.00 2,950
- - 2,900 -
FY20 FY21 FY22 FY20 FY21 FY22

Inventory Ratio Net block Ratio

Debtors days Net worth Vs Debt

10,000 200 8,000
8,000 150 6,000
INR lakhs

INR lakhs

6,000
100 4,000
4,000
2,000 50 2,000

- - -
FY20 FY21 FY22 FY20 FY21 FY22

Debtors Days Net worth Debt

Gross debt vs Net debt

6,000

5,000

4,000
INR Lakhs

3,000

2,000

1,000

-
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22

Gross debt Net debt

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 VALUATION MATRIX
Valuation matrix INR lakhs
Particualrs 30-Jan-23 Particualrs FY 2023 (E) FY 2024 (E) FY 2025 (E) FY 2026 (E) FY 2027 (E)
Rf 7.4% PV of FCFF (9,731) 355 1,041 1,555 82,013
Beta 1.19 Enterprise Value 75,233
Rm 11.7% Less: Debt 1,166
Rp 4.3% Equity value 74,067
Discount Rate 0.14 Value per share 1,646

 KEY RISK AREAS

1. Large conglomerates like P&G, Oreal and Unilever, control the cosmetics industry globally, and
have been able to establish a good footprint in India as well. Thus, the competition can turn out very
aggressive to develop new brands into the local markets

2. The working capital cycle of the Company is likely to be stretched owing to the growing scale and
hence will remain closely monitored. Inventory is huge at 90-120 days as the company maintains
numerous SKU’s and minimum order while the Company also has to offer adequate credit to its
customers.

3. Fund requirement: In order to scale up the existing business, the Company will be into severe
requirement of funds to finance the expansion and to maintain working capital. This can be financed by
way of borrowings or fresh equity.

Borrowing is already increasing over the years, adding more financial risk over and above the operating
risk. Also, the marginal cost of debt is substantially high at ~12%.

4. Sem-regulated markets and exposure to volatility in input material prices:

The operating margin has fluctuated between 7% and 10% for the four fiscals ended March 31. 2022.
The Company has export-oriented business and sells its products to semi-regulated markets. Rise in key
input prices, higher logistics cost and expenditure towards new product development/registration
impact profitability. Further, large inventory stocking exposes the company to sharp variations in raw
material prices.

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