Recommendation: BUY
Price target: Rs 500
Current market price: Rs 358
Key points
- Leadership position in a niche category: Fem Care Pharma Ltd (FCPL) has a dominant market share (around 65%) in the niche segment of bleach cream. It is also among the leading players in the liquid soap and hair-removing categories.
- To boost its overall growth, the company has introduced several product variants at various price points to effectively tap the expected growth in the FMCG industry, especially the fast growing beauty treatment and skin care segments.
- Incremental growth from exports: In FY2006, FCPL acquired a US-registered premium bleaching cream brand, Jaquline, which has an established presence in the UAE and Middle-East markets.
- The company plans to utilise it as an umbrella brand to introduce skin care and beauty products, and boost the overall growth of its export business.
- Margins to firm up: The introduction of high-margin premium products has positively affected its operating margins. The company has also commissioned a new manufacturing facility in the tax-blessed region of Baddi, Himachal Pradesh.
- The fiscal incentives in the form of income tax and excise duty exemptions are further boosting its overall profitability.
- Consolidation of its marketing arm: The distribution of FCPL's products is done exclusively by its 60% subsidiary, Mirasu Marketing.
- FCPL is expected to acquire the remaining 40% stake (held directly by the promoters) in Mirasu Marketing over the next one year. The consolidation is likely to result in marginal dilution in its equity base (about 1-1.5% on the higher side) but would be earnings accretive.
- Attractive valuation: The consolidated revenues and earnings are estimated to grow at a CAGR of 17.5% and 48.3% respectively during FY2006-08. Currently the stock trades at 9.9x FY2007E and 8x FY2008E earnings.
- I recommend a BUY on FCPL with a price target of Rs 500.
