BUY Unichem Laboratories: Anand Rathi Research

Unichem Laboratories - Healthy sequential recovery; Buy

We are positive about Unichem Laboratories: long-term growth story, and retain our Buy on the stock with a revised target of Rs 280. Its reported Q1 FY16 results beat our estimates, largely because of the strong recovery in its domestic formulations business. With the strong recovery now in place, we believe the domestic formulations business would improve. This would also lead to margin improvement, which would result in a 55.3% adj. PAT CAGR over FY15-17.

Results above our estimates. Unichems Q1 FY16 revenue grew 6.2% yoy, to Rs. 3.09bn, above our expected Rs. 2.96bn. Its EBITDA margin declined 120bps yoy, to 13.8% (above our estimated 11%) due to higher SG&A expenses, improving sequentially, however, by 800bps. Lower margins and a higher effective tax rate cut net profit 4.7% yoy, to Rs. 288m, but was still well above our estimated Rs. 215m.

Modest revenue growth. Domestic formulations revenue increased 8% yoy registering strong recovery. The FY15 full year revenue declined, largely because of the non-NLEM portfolio. Export formulations grew 11.6% yoy, prominently driven by its US business. The API business reported negative growth of 20% yoy, in line with our estimates, due to the higher base and greater captive consumption for the formulations business. We expect the domestic formulations business to gradually recover.

Change in estimates. Considering the better-than-estimated Q1 FY16 and improving margins, we raise our FY16e and FY17e revenue, respectively, 0.6% and 0.5%, and FY17e adj. PAT 1%. The higher margins would be aided by the increasing share of domestic branded formulations and US generics.

Valuations. The stock trades at 16.5x FY16e and 11x FY17e earnings. We maintain a Buy with a long-term perspective, and a revised price target of Rs 280 (earlier Rs 278) based on 14x FY17e earnings. Risks. Currency fluctuations and regulatory hurdles.

Shares of UNICHEM LABORATORIES LTD. was last trading in BSE at Rs.250.4 as compared to the previous close of Rs. 227.95. The total number of shares traded during the day was 283589 in over 6548 trades.

The stock hit an intraday high of Rs. 264.9 and intraday low of 229.7. The net turnover during the day was Rs. 71072810.

Source : Equity Bulls

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