Unichem - Result Update: Margins Outperform, Maintain BUY - Karvy

Unichem's revenues decreased by -0.4% YoY to Rs. 2,622mn in Q1FY14, as against our estimates of Rs. 2,633mn. Operating margins improved to 19.1% as compared to 18.0% in Q1FY13. Net Profit has grown by 8.9% YoY to Rs.361mn.

Revenue Details: The Company's Domestic Formulations (DF) business grew 4.2% YoY to Rs. 1756 mn on account of high base last year, while Exports Formulations de-grew by 14.2% YoY to Rs. 563mn. The key reason is lower offtake in contractual supplies in quarter. International API Capital has grown 22% YoY to Rs260mn in quarter. There has been growth YoY in this segment since last 2 quarters. However, Domestic API has shown de-growth of 47.5% YoY. According to Awacs, Unichem's CVS (+10.8%YoY) and Integra Division (+12.9%YoY) have grown in excess of 10%YoY for the quarter.

Margins Stable: EBITDA Margins have been reported at 19.1% with significant improvement of 110bps YoY. It is mainly on account of better gross margins. However, Staff cost has increased significantly this Quarter to Rs.413mn compared to Rs.347mn in preceding Quarter.

Valuation and Outlook

We have reduced our revenues by 1.8 % to Rs 12.4 bn for FY 14E and by 1.6 % to Rs 14.9 bn for FY 15E. The downgrade has been on account of lower growth of 10 % and 14 % factored for domestic formulations. We downgrade our price target by 2 % to Rs 240 based on 11.8x FY 2014E. We maintain our BUY rating on the stock. Additional trigger could be announcement of CRAMS deal which has not been factored.

Source : Equity Bulls

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