Smruthi Organics : A humble grower

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   Mkt Cap - 60 cr. PE - 10

Smruthi is an API manufacturer.
It is basically a story of a company which seems to be at an inflection point.
The company's fortunes changed when it's facilities got approved by US FDA and EU authorities in 2007. Ever since the company filed multiple DMFs and has more in the works. It also got long term (5 year) contracts from large pharma companies.
I thought D/E is not a concern since it has loads of free cash flow.
Also note the company reduced it's debt by 12 cr (from 42 to 30 cr last year)
No big capex is extimated since it uses only roughly 60% of it's existing capacity. Some amount of rennovation is required which costs about 3-4 cr a year.
Overall improving sales is having a huge impact on the bottom line.
1. The company mentions that commercial supply is beginning on a few contracts this year.
2. The company is working hard to grow sales the results of which can be seen. It is expanding it's sales force in Europe to use it's surplus capacity. 
Overall, i thought if they maintain a growth velocity of around 25% then it can
increase it's PAT by 4 times in the next 2 years. If it can continue paying back 
it's debt and reducing interest payment that can add to good news.
Dividends also seems to have significant upside since the overall cash payed out
last year was meagre compared to it's potential cash generation ability.

Edited by subu76 - 06/Oct/2010 at 12:32pm