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Research
Buy Neuland Labs: AnandRathi Institutional Research
Posted On : 2016-02-06 09:38:09( TIMEZONE : IST )
Neuland Labs - Growth and margins likely to improve; Buy with a target price of Rs 1156
We retain our Buy on Neuland Labs, with a revised price target of Rs. 1,156. Neuland reported Q3 FY16 results (13.2% yoy revenue growth and a 14.7% EBITDA margin) below our estimates. The yoy growth rate, however, appears strong because of the low base in Q3 FY15.
Low base resulted in strong results. For Q3 FY16 Neuland reported 13.2% yoy revenue growth, to Rs. 1,219n, below our estimated Rs. 1,335m. Though its EBITDA margin expanded 228bps yoy to 14.7%, it was still below our estimated 15.8% because of higher SG&A expenses and less-than-expected revenue. Adj. PAT grew 226% yoy, to Rs. 63m, primarily due to the very low base in Q3 FY15, coming below our estimated Rs. 79m.
Decent revenue growth. Revenue growth was driven by traction in its customized manufacturing solutions and complex molecules segments. One of its complex molecules, Salmeterol, reported robust business traction in Q3 FY16; another, Levetiracetam, reported more-than-anticipated revenue.
Change in estimates. We trim our FY16, FY17 and FY18 estimates: of revenue by 4.1%, 6.0% and 7.3% respectively (due to the lower-than-expected performance in 9mFY16 and the slower ramp-up of new products) and of adj. PAT by 5.3%, 6.6% and 6.8% respectively (on account of the cut in revenue estimates).
Valuation. Considering the company's strong revenue growth and expanding margins, we are optimistic about its prospects. The ramp-up in supplies to innovators in its customized manufacturing solutions business would improve profitability. We maintain our Buy recommendation, with a revised price target of Rs. 1,156 (earlier Rs. 1,241), based on 16x FY18e earnings. Risks. Delay in launch of products and keener-than-expected competition in niche APIs.
Shares of NEULAND LABORATORIES LTD. was last trading in BSE at Rs.696 as compared to the previous close of Rs. 719.75. The total number of shares traded during the day was 4373 in over 284 trades.
The stock hit an intraday high of Rs. 720 and intraday low of 689. The net turnover during the day was Rs. 3053178.
