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Research
Merck - Healthy growth - Centrum
Posted On : 2012-10-23 22:13:20( TIMEZONE : IST )
Merck results for Q3CY12 were better than our expectations. The company reported 15%YoY growth in revenues, 620bps improvement in EBIDTA margin and 29%YoY growth in net profit. The growth was driven by the chemical business (34% of revenues), which grew by 27%YoY. However, the pharma business (66% of revenues) grew by 11%YoY. Merck is a debt-free company with cash/share of Rs85. We expect the growth momentum to be maintained due to strong growth in the chemical business. We have revised our CY12 and CY13 EPS estimates upwards by 4% and 12% respectively. We have a Buy rating for the scrip with a revised target price of Rs766 (based on 14x CY13E EPS of Rs54.7).
- Strong growth in chemical business: Merck reported 15%YoY growth in revenues from Rs1.64bn to Rs1.88bn due to strong growth in the chemical business. The company's pharma business (66% of revenues) grew by 11%YoY from Rs1.15bn to Rs1.27bn. The growth was in line with the market growth of ~12%. The company's chemical business (34% of revenues) grew by 27%YoY from Rs511mn to Rs651mn.
- Strong margin improvement: Merck's EBIDTA margin improved by 620bps YoY from 13.0% to 19.2% due to overall reduction in costs. On a QoQ basis, the margin improvement was 420bps. The company's material cost declined from 44.3% to 43.9% of revenues due to the change in product mix. Merck's personnel cost declined by 90bps from 12.6% to 11.7% due to higher sales growth. Other expenses declined by 470bps from 30.0% to 25.3% of revenues.
- Strong growth in chemical business: Merck reported strong growth of 27% in the chemical segment. The company manufactures vitamin E, Oxynex ST, thiamine disulphide (TDS) and guaiazulene at its Goa facility and exports some of these products to its parent company.
- Benefit from NPPP: Merck's three major products Neurobion, Polybion and Evion are currently under DPCO. However, under NPPP, Evion would come out of price control. This product has annual sales of ~Rs500mn. This is likely to benefit the company. Its another major brand Nasivion (revenues Rs320mn) would continue to remain outside price control.
- Valuations: We have revised our CY12 and CY13 EPS estimates by 4% and 12% respectively. At the CMP of Rs641, the stock trades at 15.0x CY12 and 11.7x CY13 earnings. We have Buy rating for the scrip with a revised target price of Rs766 (based on 14x CY13 E EPS of Rs54.7) with 19.5% upside over CMP.
