Reason for us to buy Shasun Chemicals @ 50

Ranitidine: Prices recover after two yearsAfter sustained fall in prices from Rs 740 per kg in May 2006 to Rs490 in Jan-Feb’08, the Ranitidine Hydrochloride prices have reboundedto Rs 700 in fag end of May 2008Ranitidine HCl belongs to a class of medications, called H2–Blockersused for treatment of ulcers. Ranitidine HCl blocks the action ofhistamine (acid) on stomach cells thus reducing stomach acidproduction. Ranitidine HCl is useful in healing of stomach ulcers andreducing ulcer pain and has been effective in preventing ulcerrecurrence when given in low doses for prolonged period of time. Indoses higher than that used in ulcer treatment, Ranitidine HCl hasbeen helpful in treating heartburn and in healing ulcer andinflammation of the throat resulting from the acid reflects.The product patent for Ranitidine HCl was held by GlaxoSmithkline(GSK) and was marketed under the brand name ‘Zantac’. The productpatent for Ranitidine HCl held by GSK expired in 2002.Damand and SupplyAccording to the industry sources, the annual requirement forRanitidine HCl is around 6000MTPA. India, with around 3600MT of suppy,is the biggest supplier of Ranitidine to the world market. As theproduction os Ranitidine is very complex, the product is manufacturedby few players only. These are; Neuland Laboratories, Shasun Chemicalsand Drugs, SMS Pharmaceuticals, Orchev Pharma and Saraca Pharma.Producers in IndiaSMS Pharmaceuticals: Hyderabad based SMS Pharmaceuticals is thelargest producer of Ranitidine HCl and its intermediates in the world.The Company produces Ranitidine HCl in its Unit 1 located at Medak,Hyderabad, with an installed capacity of approximately 1440 MTPA. Forthe half year ended Sep’30, 2006, with a total revenue contribution ofaround Rs 46.38 crore, Ranitidine HCI and its intermediates accounted
for around 50% of the Company’s revenue.Shasun Chemicals and Drugs: The company has an annual capacity of 430MT which is almost entirely utilized. Around 50-60% of Shasun's annualsupplies go to GlaxoSmithKline (GSK), while the rest goes to variousother companies in the international market. Shasun has a strongrelationship with GSK for this product, as it supplies around 80% ofthe latter’s API requirements. Ranitidine is an important product forShasun, despite its smaller size, as supplying to the innovator makesit more profitable than the other APIs like Ibuprofen, Nizatidine etc.Orchev Pharma: Rajkot based Orchev Pharma is the laregst manufacturerof Ranitidine Hydrochloride in Gujarat with a production of around 300MTPA. The capacity utilization stands at around 62%. At present,Orchev exports around 60 to 70% of its output to foreign markets. TheCompany expects to increase the capacity utilization to 100% in thenext six months.Saraca Laboratories: Incorporated in 1992, Hyderabad based, SaracaLaboratories is a part of Virchow Group, Hyderabad. Saraca Labsproduces 1200 tonnes of Ranitidine HCl per annum. Of the totalproduction, around 48% is sold in the domestic market, while thebalance 52% is exported.Manufacturing ProcessFurfuryl alcohol, Para-formaldehyde and DMA HCl are reacted at refluxtemperature and Cystamine Hydrochloride is added and refluxed forCystofer formation. Nitromethane, MITC and Potassium hydroxide arereacted in the presence of Di-Methyl-Sulfoxide (DMSO). The reactionmass is further reacted with Dimethyl sulfate (DMS) and purified toget NMSM. NMSM and Cystofer are coupled to form Ranitidine Base andthen treated with IPA HCl to form Ranitidine HCl.Raw-MaterialsCysteamine Hydrochloride (CSH), Nitromethane and Dimethyl Sulphate(DMS) are the three major raw-materials used in the production of
Ranitidine. Together, these raw-materials account for over 50% of thetotal ingredients used for Ranitidine.Cysteamine Hydrochloride (CSH): Cysteamine is a chemical compound andis the simplest stable aminothiol and a degradation product of theamino acid cysteine.Nitromethane: Nitromethane is the simplest organic nitro compound. Itis a slightly viscous, highly polar liquid commonly used as a solventin a variety of industrial applications such as in extractions, as areaction medium, and as a cleaning solvent. As an intermediate inorganic synthesis, it is used widely in the manufacture ofpharmaceuticals, pesticides, explosives, fibers, and coatings. It isprepared by reacting sodium chloroacetate with sodium nitrite inaqueous solution. Nitromethane is distilled from the reaction and thendried over a mild desiccant.Dimethyl Sulphate (DMS): Dimethyl sulfate is a clear, water-whiteliquid with a high boiling point and a high vapor density. Thischemical is highly toxic and has no characteristic odor or warningproperty.Furfuryl alcohol: Also called 2-furylmethanol or 2-furancarbinol, thisis an organic compound containing a furan substitited with ahydroxymethyl group. It is a clear amber liquid with a faint burningodor and a bitter taste. Furfuryl alcohol is manufactured industriallyby the catalyctic reduction of furfural which is obtained fromcorncobs and sugar cane bagasse.Paraformaldehyde: Paraformaldehyde is a white crystalline solid formedby polymerization of methanal gas (formaldehyde, HCHO) by heating.Paraformaldehyde is used to make various resins with mainly phenol(melamine resin; phenol resin; vinylon; polyacetal resin; terephthalicacid; diphenyl methane diisocyanate, acrylic acid esters)DMA HCl: Di-Methyl Amine Hydrochloride (DMA HCL) is used as used as anintermediate (in powder form) for manufacture of Ranitidine and
Metaphormine. DMA HCl is available as an aqueous solution in aconcentration up to 70 %.Potassium hydroxide: Potassium Hydroxide, commonly called causticpotash with formula KOH, is a caustic compound of strong alkalinechemical dissolving readily in water, giving off much heat and forminga caustic solution. It is a white deliquescent solid in the form ofpellets obtained by concentration of purified electrolytic potassiumhydroxide solution with very low chloride content.Di-Methyl-Sulfoxide (DMSO): DMSO is a colourless, odourless (whenpure), and very hygroscopic stable liquid (bp 189°C, mp 19.5°C). It ismanufactured commercially by reacting the black liquor from digestionin the kraft pulp process, with molten sulfur to form dimethyl sulfidewhich is then oxidized with nitrogen tetroxide. DMSO is used as alocal analgesic and anti-inflammatory agent, as a solvent in industry,and in laboratories as a medium for carrying out chemical reactions.Trends in domestic Ranitidine Hydrochloride pricesThe domestic Ranitidine HCl prices crashed from Rs 740 per kg in May2006 to a low of Rs 490 per kg in January and February 2008. InFY07-08, the Ranitidine HCl prices tumbled down by over 22% to Rs519.29 per kg. The condition was so bad that the prices, even on m-o-mbasis, continued to fall.The earthquake in China and the disruptions in production and exports,and the spike in input costs together lead to sharp spurt inRanitidine prices from Rs 490 per kg in the week ended 18th March 2008to Rs 700 per kg in the week ended 27th May 2008. But even theseprices are lower than May 2006 levels. In this context, despite thesharp spike in a few weeks, they represent only a strong come back inprices, after two full years.Industry sources attribute the sudden spurt in the prices to increasein the cost of raw-materials (140% increases in the last six months)
and the removal of incentives on the export of APIs/intermediates byChina. The two main ingredients; Cysteamine Hydrochloride andNitromethane are imported from China and hence the domestic producershave no control on the prices of these raw-materials.Moreover, in CY-2007, the Chinese Govt., in its effort to curb themalpractices in the pharma industry, removed the export incentives ona set of pharma raw-materials resulting into spurt in the prices.Besides, as commodities like sulphur and crude oil etc. have witnessedspike in recent months, the prices of other Ranitidine raw-materials,also, have increased. As a result, the producers of Ranitidine HCl hadno choice but to hike the price for their finished product.IDMA seeks upward revision of Ranitidine HCl pricesBut players are expecting another 50-60% increase in the raw-materialsprices in the coming months. Hence, Indian Drug ManufacturersAssociation (IDMA) has asked the Govt. to revise the Ranitidineprices. In a notification dated 5th June 2008, NPPA has revised theprices for formulation drug; Ranitidine (with combination) from Rs3.96 per strip to Rs 4.36 per strip. Though, no notification regardingRanitidine HCl has come as of yet. But as the price of formulation hasincreased, we expect the price for bulk drug, too, to get revisedsoon.OutlookRising raw-materials prices have forced producers to increase theirprices. However, Ranitidine HCl is under Drug Price Control Order,1995, which has fixed the price for Ranitidine at Rs 615 per Kg.Resultantly, the producers can not sell their produce as a pricehigher than the fixed price in the domestic market. This has alreadyimpacted the performance of players like Saraca Laboratories, which isenjoying a very negligible margin on the sale of this product in thedomestic market.
Currently, Ranitidine producers derive comfort from two factors; One,there is no direct substitute for Ranitidine HCl and the complexproduction process for Ranitidine results into high entry barriers.Second, the Companies expect the Ranitidine prices to spurt even more,by another 20-30% in coming months. They expect no cooling-off inprices atleast until Nov-Dec08. In such a scenario, big players like SMS Pharma and Shasun Chemicalsare expected to reap more benefits than the minor ones.