• In a notice on the exchange today, CPHL announced a Joint Venture (JV) with Hangzhou Newsea Technology Co Limited, a renowned player in the Chinese pharmaceutical industry.
• The JV is named Etaci Limited (public limited company), CPHL will hold 65% of the shares, and Hangzhou Newsea will hold the remaining 35%.
• As per the notice, Etaci Limited will focus on producing APIs that CPHL is not currently manufacturing.
• Currently CPHL manufactures approximately 20-22 API and Etaci Limited plans to manufacture 30 APIs.
• According to management, the company will put another plant in, which is expected to be imported in the next 6-8 months. The COD of the same facility is expected in the next 12-18 months.
• The project’s total CAPEX would be Rs15-20bn and will be funded through a combination of debt and equity, as per channel checks. We await clarity from management on the debt-to-equity mix of this new project.
• According to the notice, the joint venture’s annual revenue impact would be Rs15bn, with a gross profit of Rs4.5bn (at 30% gross margins). Based on our back-of-the-envelope working and with net margins of 7-10%, we expect this project to add Rs3.0-4.3/share to the company’s bottom line (at 65% stake).
• We maintain our Buy stance on the stock, which trades at a FY25F PE of 5.6x.

Courtesy – Topline Pakistan Research