Hi fellow investor,
( Disclosure: I do not own shares of Hester Biosciences Ltd. My views on the company may be biased. Everything I conclude in the article is solely my opinion, based on publicly available information. This should not be taken as financial advice. This is purely for educational purpose.)
Let’s get straight into it.
Little bit of Background…
Hester Biosciences is one of the leading animal healthcare companies in India, and the country’s second-largest poultry vaccine manufacturer. The company was founded by Rajiv Gandhi (current MD) in 1987, and is headquartered in Ahmedabad, Gujarat. Mr Gandhi began his career as a distributor of poultry health products in Mumbai. He later ventured into manufacturing these products in collaboration with an American partner, who accepted equity in exchange for technology. They raised money through an IPO in 1994, under the name of Hester Pharmaceuticals Limited to fund the manufacturing set up. Their first batch of poultry vaccines was rolled out in 1997. In 2003, they terminated the collaboration agreement with the American company. Hester has come a long way since then; they now operate through two broad verticals— Vaccines, and Healthcare Products, offering 50+ vaccines and 70+ healthcare products. As of September 2023, Hester has a capacity to deliver 13.45 billion doses in India, 1.24 billion doses in Nepal and 1.50 billion doses in Tanzania. Hester also has two diagnostic labs operational in Kadi, Gujarat and Hyderabad, Telangana.
The need for vaccines…
“India has vast resource of livestock and poultry, which play a vital role in improving the socio-economic conditions of rural masses. There are about 303.76 million bovines (cattle, buffalo, mithun and yak), 74.26 million sheep, 148.88 million goats, 9.06 million pigs and about 851.81 million poultry as per 20th Livestock Census in the country.”- Department of Animal Husbandry and Dairying (Annual Report 2022-23)
“A significant obstacle in growth and production of livestock and poultry is the prevalence of diseases that cause huge economic losses in India. The outbreaks of Foot-and-Mouth disease and haemorrhagic septicaemia in cattle and buffaloes; PPR, goatpox, sheeppox, and orf in goats and sheep; have underlined the adverse impact of these diseases on livestock and poultry productivity. The most effective way to overcome the loss from diseases and increase livestock productivity is through prevention of diseases using vaccines. Foot-and-Mouth disease and haemorrhagic septicaemia inflict huge economic losses amounting to ~ Rs 140 bn and Rs 53 bn every year, respectively.” - Indian Council of Agricultural Research.
National Animal Disease Control Programme (NADCP)- It is a flagship scheme launched by the Hon'ble Prime Minister in September 2019 for control of Foot & Mouth Disease (FMD) and Brucellosis by vaccinating 100% cattle, buffalo, sheep, goat and pig population for FMD and 100% bovine female calves aged 4-8 months for brucellosis (brucella) with a total investment of Rs 133 bn for five years (2019-20 to 2023-24).
The Department of Animal Husbandry and Dairying also received an allocation of Rs 43 bn, an increase from Rs 31 bn in the revised projections for 2022-23. A significant part of the total allocation went to the livestock health and disease control programme, amounting to Rs 23 bn.
With growing population and increasing income levels, the demand for animal protein such as milk, eggs, and meat is on the rise. This has led to an increase in the number of livestock, which in turn has created a need for better animal health management.
Let’s Talk Business…
In the last five years, while the Hester India has increased Revenue at a CAGR of 13.5%, the Operating Profit has only increased at a CAGR of 2%. This fall in margins, can be attributed to the poultry industry taking a downturn after Covid.
The company started as a poultry vaccine manufacturer, and has since garnered a 30% market share in the Indian poultry vaccine market. This is a mature market with 3 large players, Venky’s (leader with 40% market share), Hester and Indovax. Thus the growth in this market for each player is more dependent on the market itself growing. The poultry vaccine market is dependent on the underlying poultry industry which can be highly cyclical. Feed (maize and soya) makes up for the majority of the production costs and any increase in the prices there can lead to disruption in the business- higher feed prices, with end consumer prices being much more sticky, leads to lower production of poultry animals, and hence lower demand for health products.