Inching towards the exit?

Tano Capital, an alternative asset management firm, recently off-loaded 1,000,000 shares of the oncology active pharmaceutical ingredient manufacturer Shilpa Medicare for a consideration of Rs. 49.8 crore.

Post the sale, Tano Capital’s holding has come down to 8% from 9.3%. The valuation of the company, however, has improved in recent days. While the stock has delivered a return of 30% over a 3-month-period, the stock has been up 19.5% for the past six months and has gained 26.6% over the past year. The stock is currently trading at 25X forward earnings.

Positive news flow and healthy financials have kept the sentiment bullish on this counter. The Karnataka-based firm recently received good manufacturing practice compliance certificate for two API sites from Japan’s drug regulator. The board also recently approved the amalgamation of Navya Biologicals, a company engaged in the development of bio-similars and bioprocess technology platforms.

Meanwhile, the company continues to maintain its high profitability. In 4QFY16, the company reported gross revenues of Rs. 200 crore which was 19% up on a YoY basis. This was the 5^th straight quarter showing YoY growth in sales. Compared to the corresponding quarter last fiscal, the gross margin and EBIDTA margin has increased by 224 basis points and 247 basis points respectively to 54.3% and 25.1% while the net profit rose 69% to Rs. 38 crore. In FY16, topline was up 17.2% to Rs. 719 crore, while profit improved 44% to Rs. 73 crore.

For Tano Capital, investment in Shilpa Medicare has been twice lucky. In August, 2010, the firm’s first fund Tano Mauritius India FVCI I  exited Shilpa Medicare with a 4.5x return. The US-based firm reinvested in Shilpa Medicare in March 2012 through Tano Mauritius India FVCI II, by picking up 3.5 lakh shares from ICICI Prudential AMC for a consideration of Rs. 8 crore. After picking up a 1.5% stake initially, Tano Capital increased its stake to 4.7% through secondary market purchases. In 1QFY15, the fund's holding jumped to 9.3% after it bought 17.64 lakh shares through a preferential allotment.