Rationale for Recommendation:

1) Company has doubled its turnover and increased the profitability 7 times in 2 years since its merger with Care.

2) Company is in all 3 segments namely, Exports, Own Domestic Marketing and Crams.

3) Domestic Sales are growing at whopping 60-65% which is main profit driver.

4) Acquired 17 brands from Sami Labs.

5) Signed Agreement with global nutraceutical giant (USD 3 bn.) Herbalife for minimum offtake of Rs. 50 cr. p.a.

6) Commenced supplies to a Malaysian Co. (USD 250 mn sales).

7) Signed an Agreement with Art Life Science of Russia.

8) Registration of its products in more than 35 countries.

9) Confident to achieve 30-35% topline growth and minimum 50% bottomline growth for next 3 years.

10) Looking to acquire an injectible unit.

11) Planning to set up a new factory in Sikkim.

12) Recently commissioned group factory in Baddi entitled for significant tax incentives.

13) Market Cap is just 0.5 x FY08E Sales as against 1.00 - 1.50 x sales of Peer Group Companies.

14) Stock is trading at 6.96 x FY08E EPS, 5.63 x FY09E EPS and 4.14 x FY10E EPS.

15) Present M.D. is a former CIPLA man and is an aggressive enterpreneur with a vision to make it Rs. 3000 cr. company by 2015.


TLPL is engaged in the manufacture and marketing of Pharmaceutical Formulations. Company presently owns and operates three factories, namely Vadgaon Maval, Pune, MIDC Pimpri, Pune and Vasai, Mumbai. All the factories are state of the art manufacturing units and are WHO-GMP and Schedule-M compliant. All the factories have facilities for manufacturing tablets, liquids, capsules, ointment and powder/creams. Vadgaon factory has an added feature being that it is one of the largest manufacturer of Anti-TB products in India. Huge capital investment has been made for the same. Company is having more than two decades association with Multinational Pharma Companies as a contract manufacturer.

Company had strong presence in following segments:

1) Gynae.
2) Dermatology.
3) General Physician.
4) Paediatrics.
5) Cardiology.

Company has special facilities for manufacturing the following:

a) Anti - T.B.
b) Dietary Food Supplements.
c) Veterinary.
d) Nutraceuticals.

Company is exporting to other 30 countries in African Continent, CIS, S.E. Asia, West Indies, South America etc.

Company is doing contract manufacturing for reputed companies like; Novartis, Pfizer, Wockhardt, Lupin, Cipla, Dupont, Herbalife etc.

Company is growing and will continue to grow atleast for next 3 years at a scorching pace (much higher than Industry growth rate) and hence the recommendation:

Company changed its business model during the last two years by giving maximum emphasis on development of sales of own products, and also launching new products in different therapeutic segments and thereby increasing the overall productivity. This has been the major contributor in the revival strategy of the company. The company will now give focused attention for strengthening domestic marketing and exports and will gradually reduce its dependence on Loan Licence and Contract Manufacturing activities. The greater emphasis on domestic sales and export will enable the company to improve its sales as well as profitability due to excellent margins in these segments. Since the production capacity vacated due to reduction in Loan Licence and Contract Manufacturing activities can be utilized for additional production in domestic marketing and export segments, the Company will not be required to make any major additional investment in its infra-structure.

The audited financial results of the Company reveal that the sales turnover has increased to Rs. 202.30 cr. as compared to Rs. 162.95 cr. in the previous year recording a net rise of 27%. The domestic marketing segment of the company has shown growth in excess of 67% when the Pharmaceutical Industry in general witnessed growth of about 14%. Similarly, there is a corresponding 47% rise in the net profit i.e. Rs. 14.09 cr. from Rs. 9.56 cr. in the previous year. The EPS of the company has increased to Rs. 6.62 per share to Rs. 5.00 each from Rs. 4.49 per share of Rs. 10 each in the last year. The company has virtually doubled its turnover and increased the Profitability 7 times in 2 years since its merger with Care Unipac Pvt. Ltd. during 2005. The Company expects the trend in the growth and sales to continue in future and targetting to achieve total sales in excess of Rs. 500 crs. by 2010 and is expected to achieve a minimum growth rate at 40% during the current financial year.

For a company whose growth got stunted due to perennial shortage of working capital and accumulated losses, it is a major turnaround and a paradigm change. The higher profitability was due to the strategy adopted by the company to focus on own sales by expanding product base as well as marketing base.

The increased profitability is also the result of achieving critical mass in the turnover of the Company. Joint marketing arrangements and promotion of products with Twilight Mercantiles Ltd. has also supported the growth of the Company. The remarkable increase in the Domestic Marketing Segment of 67% recorded by the Company was due to the synergies derived from the merger of the company together with an overall improvement in the economic conditions prevailing in the country and the sharp increase witnessed by the Pharma Sector in particular. The Company has improved its performance in the Domestic Marketing Segment substantially and has spread its marketing network all over India.

Business development continues to be the major growth strategy for the company since 2005. New products launched since 2005 have contributed around 20% of the company's incremental sales in the year under review. TLPL will be focusing on the needs to broad-base its basket of products by launching latest molecules and cater to the therapeutic areas like Nutraceutical, Dermatological, and newer Antibiotics. The Company has applied for registrations of its products for exports in several countries and the gestation period is over and the registrations have now started materializing.

For 06-07, company paid 10% dividend (immediately after Networth becoming positive) which is a sign of investor friendly attitude of the promoters.

Recent Developments:

TLPL has signed an agreement with a subsidiary of a U.S. based Nutrition Company, a $3 billion direct selling company, specializing in nutrition, skincare and weight-management products. TLPL will develop new products of Herbalife for its business in India and will also manufacture its food supplement products for the Indian market at the newly commissioned Twilight Group facility at Baddi, Dist. Solan, Himachal Pradesh. Under this arrangement, technical know-how will be supplied by the said Company. The volumes are expected to be minimum Rs. 50 cr. p.a. and will add substantially to the TLPL's prospects in the coming years. TLPL is associated with this Company as Contract Manufacturer since 1999.

Revenues from Herbalife in current year can be 60-70 crs. Recently, company has made presentation to Herbalife for exploring the possibility of supplying to other countries of Herbalife markets. In Asia, Herbalife sales are USD 700 mn. If, TLPL succeeds and Herbalife agrees to outsource for other countries, it can be a huge trigger for TLPL as its sales will zoom.

The Company has also signed an M.O.U. with Sami Labs Ltd., a Bangalore based company engaged in Nutraceuticals having proprietary rights over certain patents for the purchase of 17 brands (Trade Marks). With the addition of these brands, the Company expects to increase its turnover substantially in the financial year 2007-08. As per the agreement executed with Sami Labs Ltd., TLPL has acquired ownership of these brands and will have the exclusive rights to manufacture and market the Nutraceutical products under these brands in India. Sami Labs will also continue to support the Company's foray in the domestic Nutra segment with more research based new products in the Nutraceutical segment. Considering the huge potential in Nutraceutical business in India in the near future, TLPL has set up a separate Nutraceutical Division under the name "NUTRA" and has already launched a few nutraceutical products in the market. All these products will have some unique feature. The nutraceuticals food supplement is fast growing in the domestic market in India, with the growth outpacing the Pharma segment. TLPL will make these products at the newly commissioned Nutra facility at Baddi, Himachal Pradesh.

The Company recently signed an Agreement with the Indian arm of a Malaysian Company engaged in the marketing of Nutraceutical products. This company is carrying on its business in 6 countries besides India, and TLPL will be manufacturing their products catering to the needs of the Asian markets besides their domestic requirements of Indian market. TLPL will get the products manufactured at newly set up manufacturing facility of Twilight Group located at Baddi, Himachal Pradesh. This arrangement will add substantially to TLPL's prospects in the coming year.

This Malaysian Company has USD 250 mn sales and will give a big boost to revenues of TLPL.

4) Company has also signed an agreement with Art Life of Russia and currently new products for this company are under development. This agreement can contribute 20-30 cr. worth turnover in 08-09.

Future Prospects:

ICICI Bank has given Rs. 40 crs. as an Structured Finance to the company. These funds will be used for expansion of market terrorists, acquisition of brands and also to meet capex for upgradation of factories.

Company is targetting to achieve turnover of Rs. 500 crs. in 09-10. It will be achieved through doubling of the sales force from 800-1600, expansion of New markets, introduction of new products and big thrust on Nutra Division. This 500 cr. turnover will comprise domestic sales 200 crs., exports 50 crs. and Crams 250 crs.

Valuations:

Stock is trading at:

1) 6.96 x FY08E EPS.

2) 5.63 x FY09E EPS.

3) 4.14 X FY09E EPS.

Company is planning to set up a new factory in the State of Sikkim. It is also looking to acquire injectible unit costing approx. Rs. 20 crs.

Stock deserves much higher valuations considering:

1) There is possibility of Global Giant Herbalife outsourcing from TLPL for entire Asian markets.

2) Company is confident of bagging many more big contracts from countries like Australia.

3) Company does not need additional infrastructure to achieve 500 cr. sales.

4) Company is in all the fields, namely; own domestic marketing, exports and Crams.

Promoters Holding is 63.70% which is under lock-in upto Oct. '09. If, stock has modest discounting of 12 times, its share price should be Rs. 160/- based upon FY09 EPS. Our price target as under:

i) Rs. 115/- by Feb. '08.

ii) Rs. 175/- by Feb. '09.

Buying strongly recommended.



HEMANT K. GUPTA
Centre for Development of Financial Treasure
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