Indian Stock Market

*Krebs Biochem-A Ranbaxy Clone*
*BSE Code :524518*
*CMP: Rs 72.30*
*Hyderabad based which sold a near 15 per cent Equity stake to Ranbaxy 5 months ago has shed the baggage of its past and is ready to move forth as a pure CRAMS play dedicated to the US market. With most of its Statin (Anti-Cholestrol) production being lifted by Ranbaxy, the corporate is now free of creditand currency risk. *
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*More importantly, it has given up its efforts to diversify into manufacture of Sugar by ceding its claims on 2 Sugar mills that the Chandrababu Naidu Government had sold to Krebs Biochem. This will free-up over Rs 50 crore of cash and make liquidity robust with Krebs.*
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*Another un-related diversification into manufacture of Kraft Potato Wafers in rural Andhra Pradesh, that had sucked in close to Rs 10 crore in Equityand Working Capital has been disposed off to a private suitor. Thus, on a Rs 7 crore post-placement Equity Krebs should now have close to Rs 60 crore in cash or roughly Rs 85 per share.*
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*This is higher than the Rs 69 or so that Ranbaxy paid for a 14.9 per cent stake in Krebs Biochem.*
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*For all those who have not tracked Krebs, the corporate has two USFDA approved plants near Hyderabad dedicated to the manufacture of Ephedrineand Pseudo-Ephedrine (Anti-Congestants) and Statins (All four generations anti-cholesterol drugs), with mass generic market in the US and Europe.*
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*Things thus look much better in the context of a re-shaping of financial performance over the next 2-3 quarters.*
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*Overview *
- Krebs Biochemicals and Industries Ltd is a company involved in establishing biotech processes with applications in medicine and agriculture industry. It is a leading manufacturer of anti-asthmatic drugs like ephedrine and pseudo-ephedrine and specializes in manufacturing of statins also. Unit-I located at Nellore (Andhra Pradesh) manufactures bulk ephedrine and pseudo-ephedrine while Unit-II at Vizag (Andhra Pradesh) produces Simvastatin, Lovastatinand Vitamin E .

Third Unit located at Hyderabad is into non-biotech business dedicated for production of food products.

*Statin Advantage *
- Due to its expertise in statins manufacturing, Ranbaxy has acquired a strategic stake of 15% in Krebs Biochemicals in February this year. Ranbaxy has been marketing generic Simvastatin in US markets and likely to source cheaper API from Krebs facility. Ranbaxy is also a supplier of Lovastatin to generic players and therefore Krebs may contribute some of its exports also.

Statins come under the therapeutic segment of anti-hyperlipidemic agents, which have got the biggest market size of USD 35bn on global level. This market has grown by 7.5% in CY06. Anti-hyperlipidemic agents segment is mostly dominated by statins, which had blockbuster sales. Patents of most of the statins have expired except Atorvastatin (Lipitor). The generic version necessitates availability of cheaper API where domestic players play an important role in supplies.

*Valuation *
- Krebs has been showing an exceptionally good performance as far as revenue is concerned. 9MFY07 revenue of Rs.398m has improved by 89% YoY.

Q3FY07 revenue also appreciated by 253% YoY at Rs.143m. EBIDTA for Q3FY07 is Rs.50m where the margin has improved by hefty 32 percentage points.

This is the result of lower cost of raw materials along with positive stock adjustment. It has incurred a loss of Rs.3m for this quarter. However, there has been a gradual improvement where it incurred a loss of Rs.16m in Q1FY07 and Rs.9m in Q2FY07.

It has managed to pull back the losses from Rs.49m in 3QFY06 to loss of Rs.3m in Q3FY07. Lower interest cost and depreciation has also helped reducing the losses.
(*Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rateand interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)*