Unichem Laboratories - Out Performer - Karvy Stock Broking

• Q2FY11 REVIEW
• Unichem Labs (Rs535)
• Out performer
• Target Price: Rs632

Results in-line, domestic formulations positive

- Domestic business witnesses continued momentum: Unichem's Q2FY11 net revenues grew 15.7% y-o-y to Rs 2020.4 mn broadly in-line with our estimates. Domestic formulations sales grew 14.8% y-o-y to Rs.1573.2 mn in-line with our estimates. Growth continued to be driven by higher sales of its products in the CVS and anti-diabetic categories partially offset by decline in sales of products in generic-generic category. Export formulation business reported 31.0% y-o-y improvement to Rs. 294.3 mn during Q2FY11 due to improved sales in the US market and emerging markets and part of the sales of previous quarter booked in Q2FY11.

- Higher other expenses continue to dent margins: Unichem reported EBITDA margins of 25.1% in Q2FY11 (our estimate 25.4%) vis-a-vis 27.1% for Q2FY10. Commercialization of new facilities at Baddi, Sikkim and higher R&D cost led to the increase in other expenses during Q2FY11. Profits for the quarter were marginally higher at Rs 347 mn (our estimate Rs 340mn)

- Continue to rate the stock as Out Performer: We have downgraded our EPS estimates for FY11 by 6.6% to Rs.35.6 owing to higher personnel and other expenses. We have also marginally downgraded our EPS estimates for FY12. Continued traction in the domestic formulations business, US business execution of CRAMS contracts and turnaround in Niche generics will lead to further re-rating of the stock. We marginally downgrade our target price for the stock by 1.3% to Rs.632 based on 12.5X FY12E. We continue to rate the stock as Outperformer.

Source : Equity Bulls

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