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Research
Merck - Q1CY12 Result update - Centrum
Posted On : 2012-05-03 10:22:22( TIMEZONE : IST )
Strong growth in chemicals business
Merck has reported good revenue growth of 18%YoY for Q1CY12 due to excellent growth of its chemicals business. However, its EBIDTA margin declined by 320bps YoY from 8.5% to 5.3% due to sharp increase in material cost. The company's other income grew by 19%YoY from Rs113mn to Rs134mn due to higher treasury income. Merck's net profit declined by 7%YoY due to the fall in EBIDTA margin. The company's brands Evion and Nasivion reported over 20% growth and are likely to drive future growth of the company. We have retained Buy rating for the scrip with a target price of Rs687 (based on 14x CY13E EPS of Rs49.1).
- Good revenue growth: During the quarter, the pharma business (62% of revenues) reported 5%YoY growth from Rs842mn to Rs881mn due to a restructuring exercise. Merck's chemicals business (38% of revenues) grew by 50% from Rs355mn to Rs532mn.
- Margin under pressure: Merck reported 320bps drop in EBIDTA margin from 8.5% to 5.3% due to a sharp increase in material cost. Merck's EBIDTA margin has shown improvement on a QoQ basis from -3.4% to 5.3%. The PBIT margin of pharma business dropped by 170bps YoY from 9.8% to 8.1%. The PBIT margin of chemicals business declined by 770bps from 21.2% to 13.5%.
- Evion and Nasivion growing well: As per IMS MAT data-Feb'12, Evion has reported MAT sales of Rs479mn and Gr. Rate of 20.8%. Its OTC product Nasivion reported sales of Rs309mn and Gr. Rate of 24.9%.
- New products to drive pharma growth: During CY11, Merck introduced the following new products: Ostonate tabs, Evion Q100 caps, Tolflex SR tabs, Starvog tabs, Neurobion plus injection, Zovia tabs and Seven Seas caps. These products are likely to drive future growth of the company.
- Other developments: Merck has re-structured its pharma business with optimization of inventory and debtors in Q4CY11. The results for this are expected in CY12.
- Attractive valuations, Reiterate Buy: We expect Merck to report improved performance in the pharma business due to re-structuring and retain high growth in chemicals business. We have revised EPS estimates downwards by 1% for CY12 and 3% for CY13. At the CMP of Rs611, the stock trades at 14.9x CY12E EPS of Rs41.1 and 12.4x CY13E EPS of Rs49.1. We retain Buy rating for the scrip with a target price of Rs687 (based on 14x FY14 earnings).
