This Stock Has A “BUY” Call From HDFC Securities With An Upside Gain of 22.49%

Vimta Labs Ltd. is one of HDFC Securities recommended stocks to buy, with a market price of Rs 340.85 which is now trading at Rs 340.95 and a target price of Rs 417.50, so the brokerage has a buy call for this stock for medium-term investors looking to gain up to 22.49 percent over a 6-month time horizon. According to HDFC Securities, the revenue of the said pharmaceutical company has grown 27% YoY and 23% QoQ at Rs 75.5cr. The company has included Rs 10.4cr in revenue and the same amount in the expenditure side to factor in Food lab expenses and thats why reported sales growth seems very strong, however, adjusted revenue grew 9.6% YoY at Rs 65.1cr. Adj. EBITDA margin surged 360bps YoY at 30.6%. Better operational performance was led by cost management measures. Net profit increased 29% YoY and 20% QoQ at Rs 9.7cr. It included Rs 1.2cr as an exceptional loss for the quarter. The company has registered robust performance in H1 FY22 and guides to better the performance in the second half of FY22. In Q1 FY22, Vimta set up a regional reference Lab at Kolkata. It would take 2-3 quarters to ramp up. In Q2 FY22, the company has set up a diagnostic lab at Delhi according to HDFC Securities. The brokerage has also claimed that the company has set an ambitious target of revenue of Rs 550-600cr in FY26. It would need to put up CAPEX to reach the targeted revenue number and it would depend upon which category/division would grow at a better rate. It expects the Food testing business to cross Rs 100cr revenue in the next 2 years. National Food Lab (NFL) would have a better margin than average margin. And also it guided for CAPEX of Rs 25-30cr in FY22 and CAPEX of around Rs 30cr in FY23.Advertisement HDFC Securities has also said that Despite the Covid-19 pandemic which impacted revenues in Q1 FY21, the company reported ~17% YoY growth in revenue in FY21. As per the Management, its current capacity can do optimal revenue of around Rs 300-350cr. The company aspires to reach revenue of > Rs 500cr by FY26 which implies around 20% CAGR in revenue over FY21-26E. The year FY22 will be the maiden year for the newly launched EMI/EMC services to IT, defence suppliers, medical devices, telecom, electronics and allied industries. EMI/EMC Testing (electromagnetic interference/compatibility) business enjoys high gross margin as consumables cost remains low however when it reaches maturity stage, it would give almost company level EBITDA margin. We believe the segment would drive revenue and profitability from FY23 onwards. According to HDFC Securities The future growth pillar of the company comprises continued growth momentum in Pharma and Food segment and scale-up of its new segment i.e. EMI/EMC testing. Vimta is one of the largest players in India in its business segments. We estimate revenue/EBITDA/PAT CAGR of 22.5%/32%/47% over FY21-23E. Management guided for > 20% CAGR in revenue in the next 4-5 years. Company expects all the segments to register strong growth in the next 3-4 years. Management has an ambitious target of revenue of Rs 550-600cr in FY26. It would need to put up CAPEX to reach the targeted revenue number and it would depend upon which category/division would grow at a better rate. The company guided for CAPEX of Rs 25-30cr in FY22 and CAPEX of around Rs 30cr in FY23. The company expects the Food testing business to cross Rs 100cr revenue in the next 2 years. National Food Lab (NFL) would have better margin than average margin the brokerage further reported. Veeda clinical is one of the competitors in one of Vimtas business segments. Veeda Clinical Research Ltd, a comparable Clinical Research Organisation, reported revenue of Rs 196cr, EBIDTA of Rs 66.5cr and PAT of Rs.62.9cr in FY21. In Jun-2021, It raised funds from Private Equity Investors at a Valuation of Rs 989cr. Veeda Clinical Research Pvt. Ltd has filed IPO Prospectus with SEBI to raise Rs 832cr at a significant premium valuation and seeking a much higher multiple. We feel investors can buy the stock at LTP and add on declines at Rs 302.5 (14.5x FY23E EPS) for a base case target of Rs 386 (18.5x FY23E EPS) and a bull case target of Rs 417.5 (20x FY23E EPS) over the next two quarters claimed HDFC Securities. The above stock is picked from the brokerage report of HDFC 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.