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Investment Rationale
Unichem Laboratories Ltd (UL), an integrated pharmaceutical company with a strong presence in domestic formulation market witnessed a bad first quarter with EBIDTA margins falling to 14% led by pricing pressures in anti-infectives, cost pressures led by field force addition and increased marketing and distribution spend.
Inventory destocking in the distribution channel and a change in its primary distribution network from distributors to C&F agents in line with practices followed by industry also impacted profitability.
Commissioning of new facilities in Baddi and Sikkim and higher promotional expenses on Tier 2 brands is a conscious strategy and this too impacted margins this quarter as the company was not able to arrest the declining trend in its anti-infective brand – Ampoxin which is an ageing brand not able to grow in line with the 12% growth witnessed in the anti-infective market.
However with a domestic business of `6.5bn, UL has clearly demonstrated its ability to build large brands in growing categories like its `1.5bn brand – Losar in cardiac care and given its brand franchise with key opinion builders, we believe that UL would get back on track from H2 of the current fiscal as secondary sales have not been impacted.
Significant spare capacity and the commissioning of its SEZ in MP and expansion at Goa would spur growth next fiscal. CRAMS as a segment could be a big opportunity for UL and despite an expected 19% de-growth in earnings this fiscal we believe UL can bounce back strongly next fiscal with a 56% earnings growth.
Valuation
Despite UL domestic portfolio not growing in line with some of its more well known peers like Sun, Torrent, Cadila & Ipca we believe that the company is taking the right steps to correct the situation and this in our opinion shall put UL back on the growth track next fiscal. Field force addition during the past one year would in our view turn productive next fiscal and UL trading at 11xFY’13E earnings with a P/BV of 1.8x looks attractive as it has a healthy balance sheet with negligible debt.
In our view most of the negatives seem to be priced into the stock price and we recommend a BUY on UL with a one year price target of `200 which offers a potential 40% upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
Unichem Laboratories Ltd (UL), an integrated pharmaceutical company with a strong presence in domestic formulation market witnessed a bad first quarter with EBIDTA margins falling to 14% led by pricing pressures in anti-infectives, cost pressures led by field force addition and increased marketing and distribution spend.
Inventory destocking in the distribution channel and a change in its primary distribution network from distributors to C&F agents in line with practices followed by industry also impacted profitability.
Commissioning of new facilities in Baddi and Sikkim and higher promotional expenses on Tier 2 brands is a conscious strategy and this too impacted margins this quarter as the company was not able to arrest the declining trend in its anti-infective brand – Ampoxin which is an ageing brand not able to grow in line with the 12% growth witnessed in the anti-infective market.
However with a domestic business of `6.5bn, UL has clearly demonstrated its ability to build large brands in growing categories like its `1.5bn brand – Losar in cardiac care and given its brand franchise with key opinion builders, we believe that UL would get back on track from H2 of the current fiscal as secondary sales have not been impacted.
Significant spare capacity and the commissioning of its SEZ in MP and expansion at Goa would spur growth next fiscal. CRAMS as a segment could be a big opportunity for UL and despite an expected 19% de-growth in earnings this fiscal we believe UL can bounce back strongly next fiscal with a 56% earnings growth.
Valuation
Despite UL domestic portfolio not growing in line with some of its more well known peers like Sun, Torrent, Cadila & Ipca we believe that the company is taking the right steps to correct the situation and this in our opinion shall put UL back on the growth track next fiscal. Field force addition during the past one year would in our view turn productive next fiscal and UL trading at 11xFY’13E earnings with a P/BV of 1.8x looks attractive as it has a healthy balance sheet with negligible debt.
In our view most of the negatives seem to be priced into the stock price and we recommend a BUY on UL with a one year price target of `200 which offers a potential 40% upside.
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