SSIAS Smallcap Sample Report

THE
TITAN STRATEGY
SMART SYNC SERVICES'
SMALL CAP PICKS
A SAMPLE REPORT
Shree Ganesh
Remedies Ltd. Rating: Buy
Holding Period: Min. 2 Yrs
A Fast growing pharma-chemical intermediate CMP: Rs. 521 / share
manufacturer with strong R&D capabilities. Market Cap: Rs. 777 Cr:
Founded in 1991 by Mr. Chandu Kothia, Shree Ganesh

Remedies has developed itself as a niche manufacturer of FINANCIALS JUNE 2023
different animal & human pharma intermediates. Its foray
into specialty & fine chemicals like Aroma chemicals & P/E 27.5
contract manufacturing (CRAMs) in recent years has made its
business model more robust.
ROCE 24.7 %
Over the years, it has significantly improved its scale of

operations backed by high R&D expenditure of 3-4% of total ROE 22.6 %
sales despite its small size of operations. Given its strong past
track record, marquee clientele, management pedigree,
OPM JUNE 23 25.34 %
robust business model & new growth triggers in the form of
new capex which is expected to come online in FY24, we
expect the stock to do well in the long run. DEBT TO EQUITY 0.38
ENTERPRISE VALUE ₹ 543 CR.

Strong Industry Tailwinds: The specialty chemicals & CRAMs
industry is expected to record a strong performance in the
NO. OF EQUITY SHARES 1.28 CR.
coming decade with India becoming the manufacturing hub
aided by the China+1 trend. (Ignoring the current short-term
headwinds in the form of inventory destocking leading to
lower demand coupled with high raw material prices across SHAREHOLDINNG PATTERN JUNE 2023
the industry)
The market size of human pharmaceutical products for PROMOTERS 69.34%
mental health is expected to increase multi-fold in the

coming decade while the animal pharma sector is also FII 0.00%
expected to report strong growth in the coming period.
All this augurs well for the company’s long-term prospects.
DII 0.00%
New Capex initiatives: The company is well on track to PUBLIC 30.66%

double its gross block in FY24 with a capex of INR 40 Crs in
FY23 as well as INR 15 Crs in FY24, which will ensure higher
revenue growth coupled with better/stable margins owing to
the production of niche-higher value-added- products as well PROFIT
STOCK
PERIOD PRICE
as greater diversification of revenues from different GROWTH
GROWTH
segments.
10 YRS 28% -
Risks: The pace of the Ramp-up of new facilities, high
working capital cycle, raw material volatility & lack of a high 5 YRS 30% 65%
margin of safety at current valuations are some of the glaring
risks in our thesis.
3 YRS 21% 84%
TTM/1YR 36% 94%
SMART SYNC SERVICES | 3 AUG 2023

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SHREE GANESH REMEDIES LTD
PL A Research Report
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A SEBI Registered Investment Advisory Firm
https://www.smartsyncservices.com/
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Disclaimer
Dhruv Bajaj, analyst at Smart Sync Services, a SEBI Registered Investment Advisory firm (Reg No.
INA000007881) and his family/associates do have vested interest in the discussed securities & may
have invested in the same in their individual capacities & may do transactions in discussed
securities in future. Dhriv Bajaj and his family/associates have not received any compensation & has
not been associated with the above-mentioned securities at any point of time. This information has been
compiled from sources we believe to be reliable, but we do not hold ourselves responsible for its
completeness or accuracy.
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This material is not an offer to sell or a solicitation to buy any securities or any financial instruments
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mentioned in the report. All opinions and estimations included in this report constitute our judgment as
of this date and are subject to change without notice.
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Smart Sync Services (RIA #INA000007881)

Address: A-404, Titanium Heights Corporate Road, opp. Vodafone Office, Makarba, Ahmedabad, Gujarat 380015 |
Website: www.smartsyncservices.com | Contact No.: +91 8320535558 / [email protected]
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INDEX
S. No TOPICS PAGE NO.
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1 Investment Snapshot 3
2 Introduction 4
6
PL About the Company
Key Positive Triggers
Negatives
Closing Thoughts
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13
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Shree Ganesh Remedies Ltd.
Market Cap: INR 520 Cr. CMP: ₹434.00 52W-H/52W-L: INR 475 / INR 211.6 Industry: Pharmaceuticals &
Chemicals
As on 11 JAugust 2023
Business Slotting Investment Play Category NA

Business Segment Business Segment
B2C SSS Filter
B2B Special Situation
Market Structure Turnaround Story
Monopoly Deep Value
Duopoly Structural Industry Gr.
Oligopoly KECL- 3 Yr Chart
Comp. Intensive
Porter's 5 Forces:
Low Competition in Industry Negative
Threat of New Entrants Positive
Suppliers have bargaining power? Negative
Customers have bargaining power? Positive #N/A
No Threat of Substitutes Negative
Pharmaceuticals &
Industry Information
specialty chemicals
Industry Size / TAM : -
Industry Growth Rate CAGR% 10-12%
Investment Snapshot
Founded in 1991 by Mr. Chandu Kothia, Shree Ganesh Remedies has developed itself as a niche manufacturer of different animal & human pharma
intermediates. Its foray into specialty & fine chemicals like Aroma chemicals & contract manufacturing (CRAMs) in recent years has made its
business model more robust.
Over the years, it has significantly improved its scale of operations backed by high R&D expenditure of 3-4% of total sales despite its small size of
operations. Given its strong past track record, marquee clientele, management pedigree, robust business model & new growth triggers in the form
of new capex which is expected to come online in FY24, we expect the stock to do well in the long run.
The specialty chemicals & CRAMs industry is expected to record a strong performance in the coming decade with India becoming the
manufacturing hub aided by the China+1 trend.
The company is well on track to double its gross block in FY24 with a capex of INR 40 Crs in FY23 as well as INR 15 Crs in FY24, which will ensure
higher revenue growth coupled with better/stable margins owing to the production of niche-higher value-added- products as well as greater
diversification of revenues from different segments.
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Introduction
Shree Ganesh Remedies Ltd, a Gujarat-based Specialty, Fine Chemicals, and Pharmaceutical
Intermediates manufacturer was established as a small unit in the year 1991 by Mr. Chandu
Kothia (Promoter & Managing director) who is a Master of Pharmacy (GU) & currently manages
the business alongside his sons - Gunjan Kothia (handles the product portfolio, growth &
marketing) & Parth Kothia (handles Finance).
The company’s journey has been one of high growth & continued optimism which has helped in
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transforming it from a mere pharmaceutical intermediate producer to a diversified research-led
manufacturer across different animal & human pharma intermediates as well as specialty & fine
chemicals & contract manufacturing (CRAMs) business.
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The company since its listing in the SME exchange in 2017 has delivered tremendous returns for
its shareholders, which have only been accentuated after its main board migration in 2020.

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About the Company

The company is currently one of the fastest-growing Small cap- Pharma & Chemical
Intermediates players in the country.
The company is by the Kothia family who has more than 3 decades of experience in the
industry. Since its inception, the company has developed 10+ Fine or specialty chemicals & 40+
Pharmaceutical intermediates.
The company currently has 2 manufacturing plants having 8 production blocks in Ankleshwar,
Gujarat. The total area of the facilities is 36,500 SQM which is well equipped with world-class
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equipment right from driers to glass line reactors & has a separate utility equipment section
with a sewage treatment plant, multiple effect evaporator & solid waste incinerator.
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The company’s key products are intermediates which are chemical compounds that form the
building blocks of APIs. The pharma-intermediates are produced as a byproduct during the API
production & these are used in the manufacturing of bulk drugs & for research & development
for various pharma & bio-pharma companies.

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Product Suite:
The company primarily produces its products using the chemistry of chlorination with Thionyl
Chloride & has developed expertise in Halogenation, Grignard, High-Pressure Reactions,
Catalytic Reduction, and C-C Coupling reactions supported by its in-house Research &
Development Center.
The company has recently forayed into CRAMs as well wherein it is currently servicing 3 clients.
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The specialty chemicals industry is going through a massive tailwind in the form of China+1
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wherein India is getting a better market positioning in the industry at the cost of China while the
CRAMs industry is also expected to get the benefits of the same.
Meanwhile, the company’s Animal as well as human Pharma-intermediates portfolio which

comprises Anti-psychotic & depression drugs has a huge potential market owing to increased
mental-health-related awareness & higher costs of the medications which will lead to higher
revenues despite a smaller customer base.
The product portfolio split between Pharma & chemicals stood at 60:40 for FY23 owing to the
slow growth of only 10% in the chemical segment, however, this has retraced back to 50:50 in
Q1FY24 owing to a tremendous 111% rise in the chemical revenues.

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Similarly, the Geography split saw export: domestic at 70:30 in FY23 owing to a slow- 10%
growth in the domestic segment. However, this ratio has changed to 55:45 in Q1FY24 owing to
an extraordinary growth of 79% in domestic revenues.
Key Positive Triggers

Strong business profile:
The company owing to its three decades of experience has been able to develop strong
competency in chlorination chemistry along with several other technologies. At the same time,
by servicing diversified industries, it has been able to create more stability in its revenues
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despite the strong recent headwinds in the Pharma & chemicals industry.
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Its Focus on developing custom manufacturing solutions as well as niche specialty products has
helped in increasing the contribution of chemicals in the overall business which has resulted in
higher margins.

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This is the primary reason for the company’s extraordinary ROCE of 25%+ for the past 7 years
despite consistent capex which can generally put a toll on the company’s ROCE in the short run.
Marquee client base: We at SSS believe that a good indicator to ascertain the quality of a
small-cap company & its products is to check the clientele which they service. In the company’s
case, its clientele includes marquee names like BASF (chemicals), Laurus Labs & Sun Pharma
(Pharmaceuticals) among others.
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Strong technical & R&D competency:
The company has been able to create a strong R&D-based foundation by consistently incurring
an R&D expense of around 3% of total sales despite its small size.
This is visible from its prowess in several complex chemistries & technology.
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The company’s R&D unit helps it to provide A) Research facilities B) Contract research services
C) Scale-up services (using its pilot plants) & D)Analytical services
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The company has a strong R&D team of 20 members coupled with a process development team
of 34 employees.
The company has set up a new R&D block equipped with advanced infrastructure and
cutting-edge technologies which will be operational from Q2FY24 & will further increase its R&D
competence. Recently, the company was able to onboard 3 new clients in its CRAMs business
which is a testament to its R&D initiatives.

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Strong growth prospects coupled with the growing scale of operations:
The business has seen strong growth in the scale of operations wherein the number of
employees, molecules produced & customers serviced has doubled between FY21- FY23.
Year Employees Molecules Produced Customer Serviced
FY21 100 25+ 25+
FY23 190 50+ 50+
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The company has been consistently adding new capacities in the last few years & has already
commissioned a mammoth INR 40.5 Crs capex in FY23 which will be followed by another INR 15
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Crs capex in FY24. The new capex includes
A) State-of-the-art manufacturing block, dedicated to high-pressure reactions, which will help

the company significantly to increase its pressure reaction capability up to 40 bars (which was
recently increased to 35 bars from 10 bars) & help the company to solidify its position in the
chemical manufacturing sector. The plant got commissioned in Q1FY24 & has already started
contributing to the overall revenues.
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B) Pilot-plant block, to help in the efficient scaling up of complex processes, and will also serve
as a commercial manufacturing block for niche specialty chemicals. This will help the company
make high-value-added products & improve its CRAMs business ability. The plant will be
commissioned in Q2FY24.
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C) New GMP manufacturing block, to cater to the advanced API Intermediates along with the
manufacturing of in-house APIs. The plant is scheduled to be completed and commenced by
Q3FY24.
The company also acquired an adjacent land in December 2022 (for Unit 1 of the plant) of
20,100 SQM which is a considerable size given its earlier land area of 36,500 SQM.
Lastly, the company has also onboarded 3 projects in its new CRAMs division including a project
each from agrochemical, Specialty chemicals & Personal care sectors. The scale-up of this
segment further bores well for the company in the coming years.

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Experienced Promoter profile coupled with New blood:
The founding promoter Mr. Chandu Kothia started this business from a small factory to produce
API intermediates in 1995 & has gradually transformed it into a 500 Crs+ market-cap business in
the last 3 decades.
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With the incoming of his sons-Mr. Gunjan & Parth Kothia, (who are well versed in their
respective roles owing to their education), has ensured that the company doubles down on its
growth trajectory which is visible from the massive improvement in the scale of the business
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post their arrival.
The promoters have consistently increased their stake in the business, which is a testament to
their ‘skin in the game’.
The strong past experience of 3 decades, apt qualification for their roles, & an extraordinary
historical capital allocation record showcases the quality of the promoter group as well as the
management team.

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Strong Balance Sheet & comfortable return metrics:
The company, despite incurring recurring growth capex in the past few years, has been able to
maintain a lean balance sheet where its Debt/Equity has remained considerably below the 0.5
levels.
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While at the same time, its ROCE has remained around 20%, which is significantly above the
cost of capital. This has ensured that the company creates ‘economic profits’.
The primary positive driver for ROE has been the profit margins for the company, however, we
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at SSS believe that post the ramp-up of its new capacities, the net fixed asset turnover will
gradually improve which will further solidify its extraordinary return metrics.
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Risks
High Capex ramp-up risks: The company is consistently doing very high capex in recent years. It
has already done two rounds of financing through IPO as well as a rights issue. Since the
current capex of INR 40 Crs in FY23 & INR 15 Crs in FY24 is considerably greater than its
current size of assets, thus a potential dilution of equity/ raising of high debt in the future to
finance this ambitious capex can be a major risk.
This coupled with the overall ramp-up in utilization of these new facilities remains a major risk to
be tracked regularly.
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Raw material Volatility: The company has so far maintained higher margins owing to its
presence in niche product segments coupled with cost optimization strategies, however, the
company’s raw materials are commodities whose prices can become highly volatile in the future.
Further, since the company imports a major portion of its raw material from China, there are
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forex fluctuation risks (the company recorded a 3 Crs profit from exchange difference in FY22)
coupled with a lack of any long-term contracts for the supply of raw materials which can lead to
a negative impact on its working capital, & supply of end products to the customers owing to the
inability to secure raw materials in case of any supply chain disruptions.
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(Extract from AR22)
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Elongated Working capital cycle: The company's working capital cycle is extremely high
which has a negative impact on its returns on capital employed in the form of Sales/Total assets
being below 1 for the historical period.
This is primarily due to the high inventory period coupled with the 3-month debtor days which
are matched partly by high payable days. However, its working capital cycle has remained
above 120 days for the majority period, which negatively affects its returns on capital employed.
At the same time, a higher inventory period can also act as a major entry barrier for the new
players

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Significant increase in the stock price leaving less margin of safety:
Since the time we initiated our coverage in the stock (at Rs. 280 per share), the stock price has
increased by more than 50% in barely 6-7 months owing to strong operational results compared
to its peers, new capex being announced & discovery by other market participants (which was
partly helped by the current bull run in the small-cap stocks).
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Given the trailing Price/Earnings of around 30 times & Price/Sales of around 6 times, the
company doesn’t offer a high margin of safety at the current valuations.
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However, given the strong capex initiatives coupled with growth being seen in the core business
(especially the chemical business) & potentially higher contribution from the CRAMs business,
we believe there might be some juice left for the long-term investors who wish to invest in
‘quality’ small-cap companies (rather than statistically cheap bets).
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Closing Thoughts
At the current valua on of 550Crs, we believe the stock can do reasonably well in the coming
years given its past investments of close to 55 Crs in FY23 & 24 coupled with strong tailwinds in
the end-user segment & scale-up of its CRAMs business.
However, we at Smart Sync Services feel that for a short-term bet (say 1 year), the posi ves
have almost been discounted in current levels which means, the stock can go through some
me correc on for the coming 6-12 months. Hence, one can s ll wait for the company to arrive
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at a be er valua on ( i.e. at a Market cap of 400-430 Crs based on a 20X mul ple on FY24
expected earnings).
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Please note, as small-caps usually have vulnerability to some ‘unknowns’, investment should be
considered keeping in mind the risk proﬁle of the investor. SGRL may be considered a High - Risk
stock. That is, chances are your capital might get wiped oﬀ.
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Notes
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THE

Founded in 1991 by Mr. Chandu Kothia, Shree Ganesh

Over the years, it has significantly improved its scale of

ENTERPRISE VALUE ₹ 543 CR.

The market size of human pharmaceutical products for PROMOTERS 69.34%

mental health is expected to increase multi-fold in the

New Capex initiatives: The company is well on track to PUBLIC 30.66%

TTM/1YR 36% 94%

SMART SYNC SERVICES | 3 AUG 2023

A SEBI Registered Investment Advisory Firm

Smart Sync Services (RIA #INA000007881)

S. No TOPICS PAGE NO.

Key Positive Triggers

Smart Sync Services (RIA #INA000007881)

Business Slotting Investment Play Category NA

Industry Size / TAM : -

Industry Growth Rate CAGR% 10-12%

Smart Sync Services (RIA #INA000007881)

About the Company

Smart Sync Services (RIA #INA000007881)

Meanwhile, the company’s Animal as well as human Pharma-intermediates portfolio which

Smart Sync Services (RIA #INA000007881)

Key Positive Triggers

Smart Sync Services (RIA #INA000007881)

Smart Sync Services (RIA #INA000007881)

Strong technical & R&D competency:

Smart Sync Services (RIA #INA000007881)

Strong growth prospects coupled with the growing scale of operations:

Year Employees Molecules Produced Customer Serviced

FY21 100 25+ 25+

FY23 190 50+ 50+

A) State-of-the-art manufacturing block, dedicated to high-pressure reactions, which will help

Smart Sync Services (RIA #INA000007881)

Experienced Promoter profile coupled with New blood:

post their arrival.

Smart Sync Services (RIA #INA000007881)

Strong Balance Sheet & comfortable return metrics:

Smart Sync Services (RIA #INA000007881)

Smart Sync Services (RIA #INA000007881)

Significant increase in the stock price leaving less margin of safety:

Smart Sync Services (RIA #INA000007881)

Smart Sync Services (RIA #INA000007881)

Smart Sync Services (RIA #INA000007881)

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