Poly Medicure Ltd.

23 September 2019
Consistent Performance

Company Overview: Details:

Poly Medicure started its manufacturing in 1997 at Faridabad. Company Poly Medicure Ltd.
The company is the largest exporter of disposable medical Sector Health Care
devices from India, exporting to over 100 countries. The current Rating BUY
production per day is 3 million per day. Poly Medicure derives CMP 212
70% of its revenues from infusion therapy and 10% of its Market Cap Rs 1,870 Crores
revenue from blood management systems. Approximately 70% Face Value 5
of the revenues come from exports. The company has
manufacturing facilities in Faridabad, Jaipur and Haridwar. Poly
Medicure’s key products are – Short PIVC (Peripheral IV Valuations:
Cannula), Mini MID Lines, MID Lines, etc. 98% of the products Particulars
are related to fluid management. The major competitors are P/E 25.61
Baxter, B Braun, Johnson, etc and other unorganised players.
Div. Yield 0.95%
The company expects to commission the new manufacturing
Price to book value 4.95
plant in Mahindra SEZ, Jaipur by FY20.

Industry Overview:
Shareholding Pattern:
The global medical device industry is expected to grow at 5%
(Key Shareholders)
p.a. till 2030 and reach $800 Billion in size. This growth is
expected to majorly come from China and India. The medical Category 30-Jun-2019
devices industry in India is valued at $7.5 Billion and is growing Promoters 48.75%
at ~ 10% to 12% p.a. Imported products make up ~ 70% of Institutions 5.08%
India’s medical devices market. Non-Institutions 46.17%

The Government’s spending on health sector was 1.4% of the

GDP in FY18; by 2025, the spending is expected to rise to 2.5% Share Price Performance:
of the GDP.

It is estimated that there are 800 medical device manufacturers

in India, and they operate in the consumables segment, catering
to local consumption. The investment required to set up
manufacturing is quite low – Rs 10 to 12 Crores. Of the 800
players, only 10% have a turnover of more than Rs 50 Crores.

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 Poly Medicure Ltd. 23 September 2019
Consistent Performance

Financials
5 years performance snapshot:

Narration FY15 FY16 FY17 FY18 FY19 3 Year 5 Year

Sales 373.06 393.38 438.83 507.27 586.01 14.21% 13.45%

Expenses 288.47 306.94 344.72 385.77 452.03

Operating Profit 84.59 86.44 94.11 121.50 133.98 15.73% 12.58%

Other Income 27.80 8.39 13.35 14.37 15.84

Depreciation 18.09 20.19 22.96 28.41 36.36

Interest 10.18 9.76 8.24 11.11 12.96

Profit before tax 84.12 64.87 76.26 96.35 100.50 15.71% 10.09%

Tax 23.10 17.57 20.06 26.16 34.21

Net profit 61.02 47.31 56.20 70.20 66.28 11.89% 9.02%

- The company has generated a profit after tax of Rs 425 Crores in the last 10 years and an
operating cash flow of Rs 548 Crores
- The company has incurred capital expenditures of Rs 419 Crores in the last 10 years and paid
dividends of Rs 128 Crores
- The company has posted double digit revenue growth in the last 9 out of 10 years
- The company spends ~ 1.5% to 1.75% of revenues on R&D
- The company has a comfortable interest coverage ratio – 9.5x
- The debt-equity ratio is at 0.46

Related Party Transactions

- The company engages a promoter firm – Vitromed Healthcare for job works. The firm also is
sold goods
- Almost all the job work charges that the company incurs are paid to the promoter firm

The promoter family is related to an ex finance minsiter of Rajasthan and the promoter family was
investigated for some land deals worth Rs 7 Crores with Robert Vadra in 2014-15

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 Poly Medicure Ltd. 23 September 2019
Consistent Performance

Return Ratios:

The company has maintained a high ROE and ROCE and has comfortably made more than the
average cost of capital for every single year in the last one decade. The dip in ROE in 2019 is majorly
on the back of lower PAT margins.

Margins:

The company has constantly improved EBITDA margins while an increase in the effective tax rate has
impacted the PAT margin. In general the margins have remained stable. The company’s main raw
material is plastic granule, whose price depends on the price of crude oil.

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 Poly Medicure Ltd. 23 September 2019
Consistent Performance
Key Ratios:

Key Ratios FY15 FY16 FY17 FY18 FY19

Debt-Equity Ratio 0.43 0.38 0.37 0.38 0.41
Current Ratio 1.27 1.35 1.5 1.68 1.76
Fixed Assets Turnover 1.71 1.49 1.43 1.34 1.29
Inventory Days 46.03 45.23 42.64 47.22 46.85
Debtor Days 50.14 63.70 70.60 72.85 71.99

SWOT Analysis:

Strengths: Weakness:
- Track record of strong - Promoter family was
business performance scrutinized for shady land
- Healthy balance sheet; deals with Robert Vadra
low debt - Related party
- Free cash generating transaction with
business promoter firm

Threats:
Opportunities:
- Sector requires low
- Tailwinds that will boost
investment to set up unit;
domestic demand
industry is heavily
- The sector has been unorganised
growing and is projected
- Unfavourable policies in
to grow at a healthy pace
countries of exports will
globally for the next 5
hit sales; adverse curreny
years
fluctiations will hit PAT

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 Poly Medicure Ltd. 23 September 2019
Consistent Performance

Investment Rationale
Majorly driven by lower employee expenses, Poly Medicure enjoys a cost advantage over its global
peers. However, compared to average spend of 5% of sales on R&D by global peers, Poly Medicure
has a much lower R&D spend which limits its ability to generate more innovative products.
Compared to its larger peers who have delivered a 3% to 4% revenue CAGR in 3 years, Poly Medicure
has delivered a 14.21% revenue CAGR in 3 years.

While Ayushman Bharat and rising medical insurance coverage across India provides ample domestic
tailwinds for the business, regulations with regards to the margin cap on medical devices could
significantly hurt the business. New policies are expected in the medical devices sector which is
categorized as a “Sunrise Sector” and going forward, we can expect the big local players to gain a
string foothold in the domestic market.

Particulars Particulars
Recommendation BUY
Max BUY 250
Allocation 5%
Expected Holding 36 Months+
Expected Target* 500+

Note: If you already own Poly Medicure in the Breeze Portfolio, you can still invest ~ 5% of your
existing portfolio into the stock. Please keep the Breeze Portfolio separate from the active portfolio.

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 Poly Medicure Ltd. 23 September 2019
Consistent Performance
Disclaimer:

This report has been prepared, approved and distributed by Raghav Behani. Raghav Behani is a SEBI registered Research
Analyst bearing certificate number: INH200004471.

The report has been prepared for the registered subscribers of Raghav Behani. This report should not be reproduced or
redistributed to any other person in any form without Raghav Behani’s prior permission. The report is purely for
information purposes and is not to be interpreted as an investment recommendation/advice. The opinions expressed in
the report are current opinions and may change time to time without any notice. Raghav Behani does not accept any
liability from the use of this document. The reader is supposed to conduct his own research before investing.

The report has been prepared based on publicly available information filed by the company to the respective stock
exchanges. While reasonable steps have been taken to present reliable data in the report so far as it relates to current and
historical information, Raghav Behani does not guarantee the accuracy or completeness of the data in the report. The
report has been prepared after carrying out research on this data and the documentary evidence of the same is available
at the place of business of Raghav Behani as per regulatory requirements.

Rating System:

Rating Expected Return Time Frame

BUY 10% + 1 Year
HOLD 0 – 10% 1 Year
SELL Negative 1 Year

Disclosures:

Disclosure
a) Whether the research analyst or research entity or his associate or his relative has any financial NO
interest in the subject company
b) whether the research analyst or relatives, have actual/beneficial ownership of one per cent. or more NO
securities of the subject company
c) whether the research analyst or his associate or his relative, has any other material conflict of NO
interest at the time of publication of the research report
d) whether it or its associates have received any compensation from the subject company in the past NO
twelve months
e) whether it or its associates have managed or co-managed public offering of securities for the subject NO
company in the past twelve months
f) whether it or its associates have received any compensation for investment banking or merchant NO
banking or brokerage services from the subject company in the past twelve months
g) whether it or its associates have received any compensation for products or services other than NO
investment banking or merchant banking or brokerage services from the subject company in the
past twelve months
h) whether it or its associates have received any compensation or other benefits from the subject NO
company or third party in connection with the research report
i) whether it or its associates have received any compensation from the subject company in the past NO
twelve months
j) whether the subject company is or was a client during twelve months preceding the date of NO
distribution of the research report
k) whether the research analyst has served as an officer, director or employee of the subject company NO
l) whether the research analyst or research entity has been engaged in market making activity for the NO
subject company

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