Unichem Laboratories - New pricing policy to weigh on performance; Buy - Anand Rathi

Modest performance expected. We expect 12.8% yoy revenue growth, mainly due to slowdown in domestic pharma and potential impact of new drug pricing policy. Further, high base of export formulations would also have its impact on growth. EBITDA margin is expected to improve 110bps yoy, to 18.5%, considering improvement in field force productivity and higher sales in US. We expect adjusted PAT to grow 8.4% yoy, lower than revenue, due to higher effective tax rate and high depreciation charge.

APIs, domestic formulations key growth drivers. We expect the domestic formulations business to grow at muted 10% yoy, due to industry slowdown and impact of new drug pricing policy. We expect the high growth in export formulations in previous year to have a bearing on growth in FY14 and expect just 10% yoy increase in revenue from this segment during 3QFY14. Its API business is expected to report strong 50% yoy increase in revenue led by exports. However, we expect recovery in growth to start from 1QFY15, led by domestic formulations business.

Improving financials. We expect revenue and adjusted net profit to record 12.7% and 17.8% adjusted CAGR, respectively, over FY13-16, led by recovery in domestic formulations and strong growth in exports on capacity addition. Its EBITDA margin is expected to improve 170bps over FY13-16, chiefly due to recovery in its high-margin domestic formulations and expected turnaround of Niche Generics subsidiary.

Our take. We remain positive on long-term outlook of the company, considering its strong product portfolio for the domestic market and expected turnaround of Niche Generics. The stock is trading at 13.6x FY14e and 11.1x FY15e earnings. We maintain a Buy on the stock, with a price target of Rs. 214 based on 12x FY15e earnings. Risks. More–than-expected impact of new drug pricing policy, currency fluctuations and regulatory hurdles.

Source : Equity Bulls

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