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BUY Unichem Labs: AnandRathi Institutional Research
Posted On : 2016-01-30 02:11:26( TIMEZONE : IST )
Unichem Labs - Healthy sequential recovery; Buy with a target price of Rs 337
Unichem's domestic branded formulations business recovered strongly in Q3 FY16, with 19.5% yoy growth. Higher personnel costs, however, and other operating expenses cut into the margin and PAT. We expect the recovery in domestic formulations to persist and margins to improve gradually. We are positive about the company's long-term growth story and retain our Buy, with a revised price target of Rs 337.
Strong revenue growth but lower margins. Unichem's Q3 FY16 revenue grew 15.2% yoy, to Rs. 3.06bn, in line with our estimate. The EBITDA margin rose 796bps yoy, to 11.1%, on a low base, though lower than our estimated 13.5% on account of higher staff costs and SG&A expenses. Adj. PAT came at Rs. 233m, 1,032% yoy higher, lower however than our estimated Rs. 296m due to lower margins.
Strong revenue growth. Domestic formulations revenue grew 19.5% yoy, recovering very healthily. The higher, 19.5% yoy, growth in domestic formulations was largely due to the low-base effect and double-digit growth in its largest brands Losar and Ampoxin. Export formulations grew 22.6% yoy, prominently driven by its US business. However, its API business reported a 25% yoy decline.
Change in estimates. We trim our FY16, FY17 and FY18 estimates: revenue by 1-1.5% due to a decline in its API business and niche generics (the UK subsidiary) and adjusted PAT by 4.7%, 5.9% and 9.7%, respectively, on account of lower revenue and higher base of SG&A expenses.
Our take. We believe the domestic formulations business would continue to improve with the launch of products, productivity improvement and price increases. This would also lead to margin expansion. We maintain a Buy from a long-term perspective, with a revised price target of Rs. 337 (earlier Rs. 373) based on 16x FY18e earnings. Risks. Currency fluctuations and regulatory hurdles.
Shares of UNICHEM LABORATORIES LTD. was last trading in BSE at Rs.239.4 as compared to the previous close of Rs. 232.55. The total number of shares traded during the day was 36180 in over 1283 trades.
The stock hit an intraday high of Rs. 245.9 and intraday low of 232. The net turnover during the day was Rs. 8689190.
