Unichem Laboratories - Fairly valued; Hold - Anand Rathi

Unichem Laboratories (Unichem) reported better-than-estimated 2Q results, led by strong performance of domestic formulations. The segment grew 20.5% yoy, leading to better EBITDA margins and above expected PAT (adj.). We, however, believe that current valuations already factor in the strong performance. Hence, we maintain Hold on the stock with target price of Rs.212.

- 2QFY13 results. Revenue grew 34.1% yoy to Rs.2.6bn, slightly higher than our estimate of Rs.2.5bn, led by higher-than-estimated domestic formulations growth. EBITDA margin increased 540bps yoy to 20% (vs. estimated 17.5%) due to strong growth in high-margin domestic business. Higher margins led to strong adjusted PAT growth of 83% yoy to Rs.351m.

- All-round growth. Exports formulation remained a key growth driver with 76% revenue increase on account of commercialization of new MNC contract from Ghaziabad plant in 3QFY12. Domestic formulation surprised with 20.5% yoy revenue growth on a low base, but higher than our estimate of 15%. Export APIs also grew 76% yoy in revenue.

- Healthier financials. Revenues have grown substantially after slowing down in FY12. We expect growth momentum to continue in 2HFY13 on a low base, led by recovery in domestic formulations. EBITDA margin has also started recovering from a low of 15% in FY12 to 19% in 1HFY13, which we expect to stabilise at 18-20% in coming quarters.

- Valuation. The stock currently trades at 15.5x FY13e and 12.5x FY14e earnings. We maintain Hold, mainly on fair valuations with a target price of Rs.212 per share based on 14x FY14e earnings. Risks. Currency fluctuations and regulatory hurdles.

Source : Equity Bulls

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