Buy This Multibagger Pharma Stock For A Target Price of Rs. 500 In 12 Months

Hikal Ltd, a small-cap company with a market capitalization of Rs 4,755.71 crore, is a global player in the pharmaceuticals industry. On the NSE, the company's shares have risen from Rs 160.15 on February 22, 2021 to Rs 389.40 today, resulting in a multibagger return of +229.25 (143.15 percent) in a year. On the 17th of August 2021, the stock reached a 52-week high of Rs 742.00, and on the 31st of March 2021, it touched a 52-week low of Rs 143.00. The company recently announced its Q3FY22 results, following which ICICI Securities issued a buy call on the stock with a target price of Rs 500 and a 12-month target period.

Q3FY22 results of Hikal Ltd as per the brokerage

• Pharma remained flat while growth was driven by crop protection.
• Revenues were up 11.1% YoY to Rs 514.5 crore.
• EBITDA was at Rs 92.9 crore, up 1.7% YoY with margins at 18.1%.
• Consequent PAT was at Rs 45.2 crore (up 12.2% YoY).

Key investment rationale for Hikal Ltd according to ICICI Securities

• Capex progress in both pharma and crop protection.
• Margin improvement on the back of several cost rationalisation & efficiency improvement measures undertaken during the pandemic.
• The crop protection segment maintains growth due to sustained product offerings and optimum capacity utilisation.
• Received manufacturing license for the production of APIs at Panoli site, to resume post validations over the next quarters.
• Raw material challenges are expected to continue in the next few months.

Buy for a target price of Rs 500

ICICI Securities has claimed that "Hikal's share price has grown by ~2.5x over the past five years (from ~Rs 153 in Feb 2017 to ~Rs 389 levels in Feb 2022). Maintain BUY on account of consistency in offtake for crop protection CDMO, expected recovery in pharma, visibility CAPEX. That said we continue to monitor developments on recent critical issues- 1) Surat (Gujrat) GIDC incident and 2) MPCB notice for Taloja. Valued at Rs 500 i.e. 22x P/E on FY24E EPS of Rs 22.6."

According to the brokerage, the stock's key risks include less-than-expected margin expansion and legal challenges arising from the Surat incident, which investors should be careful of.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.