Unichem Labs - Weak quarter, margin improvement visible; Buy - Anand Rathi

Results in step with our estimates. Unichem's revenues grew 0.3% yoy to Rs. 2.66bn, slightly below the Rs. 2.69bn we expected. The more-than-200bp drop in raw-material costs expanded the EBITDA margin 110bps yoy to 19.2% (vs our estimated 18%). The margin expansion, along with higher other income, helped adjusted PAT grow 8.9% yoy to Rs. 361m, more than our estimated Rs. 319m.

Weak growth across segments. The weak revenue growth was felt across business segments, as expected. Also, due to the high base of 1QFY13 and some impact on inventory in the home market on the new drug-pricing-policy implementation. Domestic formulations revenue grew just 4.2% yoy, in line with our estimate. Management held to its guidance of higher-than-industry FY14 domestic formulations growth, of 200bps. Export formulations fell 14.2% yoy, due to the high base and absence of any new contract for supplies. Export APIs showed a healthy performance - a 22% yoy increase in revenue.

Our take. We believe the weak performance resulted chiefly from the high base of 40% 1QFY13 revenue growth and less inventory in the system on implementation of the new drug pricing policy. However, the EBITDA margin improved to 19.2% despite lower revenue growth, which we expect to continue. Overall, we expect a 12.1% CAGR in revenue over FY13-15 (and 20% in adjusted PAT), along with a 150-bp EBITDA margin expansion (consolidated). Considering the potential impact of the implementation of new drug pricing policy in the home market to the extent of Rs. 150m, we lower our FY14 and FY15 revenue estimates respectively 3.7% and 3.7%, and adjusted PAT estimates 6% and 2.7%.

The stock trades at attractive valuations of 11.1x FY14e and 9.1x FY15e revised earnings. We maintain a Buy with a revised price target of Rs. 214 (earlier Rs. 236) based on 12x FY15e earnings. Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

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