Vivimed Labs - Better pharma growth, lower interest cost drive earnings; Buy with a target price of Rs 133
Vivimed registered a decent Q1 FY17. A 10.7% yoy increase in revenue and a steep drop in interest costs pushed up PAT 15.2% yoy to Rs. 279m. We believe the launches in the US market and the focus on a better product mix in specialty chemicals would lead to greater profitability. We are positive about Vivimed and retain our Buy rating, with a price target of Rs. 133.
Robust earnings. Vivimed's Q1 FY17 10.7% yoy revenue growth to Rs. 3.7bn, beat our estimated Rs. 3.5bn. However, its EBITDA margin declined 205bps to 18.1% (in -line with our estimate) due to the lower gross margin. Though EBITDA was steady yoy, PAT grew 15% yoy to Rs. 279 (our estimate: Rs. 222m), due to a sharp drop in interest on reduction in debt.
Healthy revenue. Revenue growth of 10.7% was primarily driven by 22% yoy growth in its pharma division to Rs. 2.9bn, which now brings in 78% of revenue. The pharma division growth was largely driven by API as formulations were relatively muted. Pharma had a 12.5% EBIT margin. The pharma divsion EBIT margin improved sequentially. Specialty chemical sales continued to decline yoy due to the sale of some part of the business to Clariant. As a result, the specialty chemical division contracted 16% yoy to Rs. 800m. Due to sale of part of the low-margin specialty-chemicals business, Vivimed had a good 19% EBIT margin, up 82bps yoy, 640bps qoq.
luation. The stock trades at attractive valuations of 6.1x FY17e and 4.5x FY18e earnings. We are positive about it because of the better product mix, lower financial leverage and greater operating efficiency. We maintain our Buy rating, with a price target of Rs. 133 based on 8x FY18e EPS. Risks. Delay in regulatory approvals, currency fluctuations.
Shares of VIVIMED LABS LTD. was last trading in BSE at Rs.75.2 as compared to the previous close of Rs. 75.15. The total number of shares traded during the day was 44865 in over 314 trades.
The stock hit an intraday high of Rs. 76.5 and intraday low of 74.75. The net turnover during the day was Rs. 3400293.