Poly Medicure

Market Capitalization: 4,470 Cr	Current Price: 507 (1 Feb 2021)
Stock P/E: 37.4	Debt to equity: 0.29
Sales Growth (3Yrs): 15%	Profit Growth (3Yrs): 21%
ROCE: 24.6%	ROE: 22.9%
Promoter holding: 48.8%	Cash Cycle:78 days
Asset Turnover: 0.97	Net Profit Margin: 16.1%

Company Overview

Poly Medicure Limited (Polymed) is an India-based manufacturer and exporter of medical devices. The Company exports plastic medical disposables/surgical devices. It manufactures and supplies approximately 100 types of disposable medical devices in the product verticals of Infusion Therapy, Anesthesia, Urology, Gastroenterology, Blood Management and Blood Collection, Surgery and Wound Drainage, Dialysis and Central Venous Access Catheters. It supplies its products to approximately 100 countries. Its products include Safety I.V. Cannula with Adva Needle Technology, Quick Flashback I.V. Cannula, Style/Mandrin with luer lock, Central Venous Catheters, Suction Catheters, Oxygen Mask with Reservoir, Fixed Concentration Mask, Infant Feeding Tube, Thoracic Drainage Catheter-Straight, Haemodialysis Catheter, Mucus Extractors and Blood Collection Needle. The Company operates over four manufacturing facilities in Faridabad (Haryana), Jaipur (Rajasthan) and Haridwar (Uttarakhand). Polymed manufactures more than 125 products using state of the art technology in ultra-modern facilities & state of art technology covering over 400,000 square feet of manufacturing floor space with about 100,000 square feet of cleanrooms. A high degree of automation and an effective process control helps in delivering consistent product quality. The company was founded by Himanshu Baid and his brothers in 1997.

Business Analysis

Niche Sunrise Industry with Immense Potential

Indian medical devices industry is in sweet spot owing to Increasing public spending in healthcare, Economic growth leading to higher disposable incomes, Increased Penetration of Health Insurance, and Emergence of new models of healthcare delivery.

Indian Medical Devices is high growth industry with strong potential going ahead. The current market size of the medical devices industry in India is estimated to be USD11 bn. As per industry estimates, the Indian medical devices market will grow to USD 50 billion by 2025. Thus, industry is poised for strong growth in the next few years.

The local medical devices industry has huge opportunity to ramp up production and reduce dependence on imports as currently over 70% of the Medical Devices are imported into the country. Government has announced health cess of 5% on import of medical equipment to protect domestic manufacturing. Further, Government is looking to setup 4 medical device parks and announced Production Linked Incentive (PLI) scheme to promote domestic manufacturing of medical devices. The total outlay under the PLI scheme is around INR3,420 crore and 5% incentive will be provided on incremental sales of medical devices manufactured in India. The incentives under the scheme will be offered over a period of 5 years from FY21 to FY26.

Additionally, Government has classified medical devices as drugs. These stringent regulations will have a major impact on small and unorganized players but will improve the brand image of India’s medical devices in the exports market and improve market share of branded players like Polymed.

New Products/Expansions to Stoke Growth

Polymed focuses on vascular access, infusion therapy, diagnostics, renal care, and respiratory care products. Infusion therapy & vascular access and blood transfusion system are the two main products contributing around 71% and 9% of the total turnover of the company in FY20.

It has recently launched dialysis machines and other allied equipment like viral transport medium kits, masks, ventilator accessories etc. The company is exploring opportunities in Europe and USA as all its recently developed products have received EU approval and will be launched in select markets in the next few months. The company is also expanding its distribution network in India to cover tier 2 and tier 3 cities.

Polymed has production capacity of around 4 million medical devices per day with 8 state-of-the-art manufacturing facilities around the world. It is amongst the top 3 I.V. Cannula manufacturers of the world and has over 200 plus registered patents across many countries. Polymed has embarked on an expansion plan to extend its manufacturing capacity by investing over INR100 crore in FY20 and FY21. The Faridabad Phase II plant was operational from November 2020 and will manufacture new products like Manifolds, Catheters, and new sizes of Dialyzers apart from adding capacity of some existing products. The second plant in Jaipur SEZ will start from February 2021 with capability to produce medical devices like Catheters, Tubings, Infusion lines etc and will primarily be exported to UK and EU.

In FY19, Polymed acquired Plan1Health SRL (100% subsidiary of Poly Medicure B.V., Netherlands),  an Italy-based company that manufactures mainly cancer related devices and other critical devices. Polymed has expanded the subsidiary’s capacity by 3x by adding new warehouses to facilitate increased storage and movement of goods. The company will start exporting its products to Brazil, Russia, China etc from 2021 using this subsidiary.

QIP for Expansion

Polymed has over 250 injection moulding machines and 800+ injection moulds along with 150+ automatic assembly machines with vision control systems. It is using a high degree of automation and effective process control which aids in introducing innovative products and deliver consistent product quality. It possesses ultra-modern tool room with sophisticated machines like CNC wire cut, EDM and Vertical Machining Equipments. Polymed’s use of robotics and rapid prototyping 3D printer CAD/CAM technology etc helps in delivering innovative and cutting-edge products.

Polymed is targeting next phase of growth and announced a QIP for INR400 crore in Q4 FY21. The funds raised are expected to significantly strengthen the business prospects as the group is planning to invest the funds to expand its capacities. The company envisages to raise another INR200 through internal accruals and plans to invest around INR600 crore in the next 2-3 years to expand its competencies in Renal, Preventive health care and Oncology devices. Renal market is completely dependent on imports currently and there is huge demand for dialyzers and dialysis machines. With government support through PLI schemes, Polymed is expected to scale up its business in Renal products and Preventive health care.

Key Risks

• Polymed mainly exports to regulated markets in Europe and USA. Any change in policies or regulations in these markets can impact profitability.
• The company is exposed to stiff competition from international cash-rich companies like Baxter, B Braun, Boston Scientific etc. This would require higher expenditures in R&D to remain competitive.
• Margins are susceptible to fluctuation in prices of plastics which are linked to crude oil prices. Further, as exports contribute to around two-third of the sales, the margin is exposed to fluctuations in forex rates.

Key Positives

• Polymed is a strong player in medical devices market with 200+ patents and exporting to over 100 countries. The company’s recent foray in renal care, oncology, and preventive health care can lead strong growth in next few years.
• Polymed is making sustained investments in automation and digitization which is expected to improve operational efficiencies. Further, its in-house tool design and R&D facilities aids continuous innovation.

Outlook and Valuation

Polymed is a niche company that is well positioned to capture the massive opportunity to substitute imports in the medical devices industry. The company was founded by first generation entrepreneur Himanshu Baid and his brothers. Himanshu Baid left his lucrative job to setup this company in 1997 and has currently attained a scale to push to greater heights from here. Polymed is now looking to do a massive capex of INR600 crore which is more than the current gross block of the company which reflects the confidence in the business prospects going ahead. With the government impetus on ‘Make in India’ and the PLI schemes can give tremendous boost to Polymed. Thus, the company looks very attractive at TTM PE of 37 with a medium to long-term perspective.

Disclaimer: Have personal investments in Poly Medicure at the time of writing this note. Information in this blog is for educational purposes only. The articles may contain external links , references and compilation of various publicly available articles. All copyrights and trademarks of images belong to their respective owners and are used for Fair Educational Purposes only.