Unichem Laboratories - Restructuring exercise delivering results - ICICIdirect

Unichem reported better than expected Q2FY13 numbers. Net sales grew by ~33% to Rs.261 crore (I-Direct Estimate: Rs.253 crore) buoyed by ~74% growth in exports, which constitute 33% of the net sales. Exports growth along with ~21% growth in the domestic formulations enabled the company to improve on the EBITDA margins front which improved by ~474 bps to 20% (I-Direct Estimate: 18%). Robust profitability at the operating level helped the company to post robust 83% growth in the net profit to Rs.35 crore (I-Direct Estimate: Rs.31.5 crore) despite higher tax outgo. In the backdrop of successful restructuring, we have upgraded the stock from HOLD to BUY with multiple up-gradation.

Indian formulations growth on the back of restructuring and lower base

Domestic Branded formulations grew by 20.7% Y0Y to Rs.172 crore driven by inventory rationalization during most part of FY12 which has brought down the channel inventory from ~90 days to less than 40 days at present. As per AWACS, the September quarter growth stood at 8.6% YoY as it is still reflecting the flow of old inventory in the channel.

Exports registered strong growth driven by both Formulations and APIs

Export formulations grew 76% to Rs.58.1 crore as it registered ~Rs.12 crore sales from CRAMS business for a US customer and benefited from favourable currency. It filed 2 ANDAs during the quarter taking total ANDA count to 27. Of which, it received final approval for 11 products and launched 8 drugs till date. It has identified 10 products for generic filing over the next 3 quarters.

Successful business overhaul warrants re-rating

We have upgraded FY13E / FY14E EPS by one rupee each on the back of improved visibility post restructuring of domestic branded formulations as reflected in the H1FY13 numbers. Other growth drivers will be- 1) incremental product launches in the US and 2) improved off-take by CRAMS vendors. We expect revenues, EBITDA and net profit to grow at a CAGR of 14%, 17% and 20%, respectively, in FY12-14E. We have updated our target multiple from 9x at Q4FY12 to 12x for future targets. Our revised target price is Rs.217, based on 12x FY14E EPS of Rs.18.1. We recommend BUY.

Source : Equity Bulls

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