Unichem Laboratories - Fullerton Securities

Unichem Laboratories Limited (Unichem) is an integrated pharmaceutical company with strong presence in domestic formulations market. The company enjoys strong foothold in the chronic segment having leadership in cardiology and neurology segments. It has demonstrated its ability to build large brands in growing categories (like its Rs. 1.6bn brand - Losar in cardiac care) by retaining prescribers and generating new prescriptions at family physician level.

- Domestic business growth which slowed down in FY12 has revived in 9MFY'13 led by various initiatives taken by the company such as increased focus on prescription generation, strong addition to the field force, developing second-tier of major brands and change in the distribution model. The company is also developing dermatology & gynaecology portfolio through addition of new MR's. We believe the growth momentum to continue and revenue expected to grow at CAGR 18% for FY12-FY14E.

- Unichem is expected to enhance presence in US on back of new product launches, despite being the late entrant. It has filed for 27 ANDAs till date and has 11 approvals of which 9 are launched in US. It has guided for 1-2 filing per quarter in US going ahead.

- Significant capacities at Ghaziabad, Sikkim and Baddi places Unichem in a better position to attract contract manufacturing agreements with MNC's from its facilities. Contract Research and Manufacturing Services (CRAMS) as a segment could be a big opportunity for the company and one new contract expected in FY14 would spur growth next fiscal.

- Unichem's debt free balance sheet enables it to explore new organic and inorganic growth opportunities. The sale of Madhya Pradesh based new formulation manufacturing facility to Mylan Laboratories Limited (Mylan) for a total consideration of Rs. 1.6 bn will further bolster the company's cash position. Revenues and earnings are expected to clock 19.5% and 43.7% CAGR respectively over FY12-14E, with an EPS of Rs. 16.3 in FY14E.

Key Risk

- Break-even of Niche Generics Ltd (UK Subsidiary) and Unichem Pharmaceuticals USA Inc. (US Subsidiary) has been delayed due to lower growth in European market and delay for approvals by USFDA in US market. However, we believe both the subsidiaries to gain traction over the next two years with number of products lined up for approvals.

Valuation

Unichem has taken the necessary steps to revive the domestic formulations business which would fuel the future growth. Continuous field force addition has turned productive during the year. At the CMP, the stock is trading at 10.3x FY'14E earnings and looks attractive, considering its balance sheet strength. We recommend a BUY with a target price of Rs. 212 based on 13x FY'14E earnings.

Source : Equity Bulls

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