Benefits from re-structuring
We recently met the management of Unichem Laboratories (ULL). Key take aways from the meeting are:
The company has undergone re-structuring over last six quarters and is now poised for good
growth.
On a standalone basis, ULL derives 69% of its revenues from the domestic market and 30% from
the international markets.
ULL entered into acute segment (70% of the domestic market) in FY11 and commenced a new
division for acute segment with 400MRs. However, the company faced higher attrition rate of 35-
38%. ULL also witnessed sharp fall in EBIDTA margin from 25% to 13%.
The company is now focused on cost structure and the EBIDTA margin has grown on QoQ basis.
In Q4FY12, the EBIDTA margin improved by 60bps QoQ.
ULL has been able to achieve inventory level reduction at distributors from 80 days to 40 days
over the last 6 quarters. The company also streamlined the credit norms and corrected the
product portfolio.
The management expects 100bps improvement in EBIDTA margin over next 3 quarters due to
the change in distribution strategy.
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Product Portfolio
ULL has currently 2,100 MRs, of whom 1,200 are in acute area (35% of revenues and balance 900
in chronic segment (65% of revenues).
The company has recently launched rosuvastatin tablets (outside DPCO) and
rosuvastatin+aspirin tablets (in DPCO) and expects good growth from these products. In FY12,
the company has launched 5 new products and 15 line extensions.
ULL has started a new division for gynaec and hospital segment in FY12 with 150 MRs.
The company has re-structured its product portfolio in the 4 divisions namely: CVS,
CVS+diabetes, CVS+nephrology and CNS.
Manufacturing facilities
ULLs API facilities are located at Roha and Pithampur and are approved by US FDA.
The company’s formulation facilities located at Ghaziabad and Goa are approved by US FDA. The
company has three formulation units at Baddi catering to domestic and semi-regulated markets.
ULL’s new manufacturing facility at Sikkim commenced operations in May’11 and is eligible for
100% exemption in income tax and excise duty for 10 years. The company is setting up a new
formulation facility at SEZ, Indore.
The commencement of three manufacturing units at Goa, Baddi and Sikkim in FY12 has resulted
in mismatch of revenues and expenses.
Global business
ULL has 550 product registrations across 45 countries and exports to 35 countries.
Its 100% subsidiary Niche Generics, UK contributes around 8% to the consolidated revenues.
Around 30% of Niche production has been transferred to India. This is likely to improve the
margins.
ULL has filed 25 ANDA with US FDA of which 11 are approved. The company has launched 8
generic products in the US market, majority of which are backed by its own DMF. The
management expects around 20 generic products in US and ~30% YoY growth by FY15.
The company’s Brazil subsidiary has received 2 approvals and the facility is approved by local authorities
Financials
On a standalone basis, ULL has reported 8%YoY growth in revenues for Q4FY12 from Rs1.78bn to
Rs1.93bn. ULL’s EBIDTA margin improved by 390bps from 13.2% to 17.1% mainly due to the
reduction in other expenses. The company’s net profit grew by 54%YoY from Rs150mn to
Rs232mn due to margin improvement and lower tax rate.
On a standalone basis, ULL reported 5%YoY growth in revenues for FY12 from Rs7.65bn to
Rs8.03bn. The company’s EBIDTA margin dropped by 520bps from 21.1% to 15.9% due to an
increase in overall costs. ULL’s net profit declined by 24%YoY from Rs1,087mn to Rs824mn.
ULL’s 100% subsidiaries in UK, US and Brazil reported marginal losses for FY12 as follows: Niche
Generics, UK revenues 10.32m GBP and net loss of 0.19mn GBP, Unichem Pharma, USA revenues
$5.43mn and net loss $0.75mn, Unichem Pharmaceuticals Do Brasil, Brazil revenues of Br. Reals
0.009mn and net loss of Br. Reals 2.48mn. The management expects the UK and US subsidiaries
to break-even in FY13.
At the CMP of Rs136, the stock trades at 14.9x FY12 standalone EPS of Rs9.1.
The management has guided revenues of ~Rs10.0bn (25% growth) and EBIDTA margin of ~20%
for FY13 and ~Rs12.0bn (20% growth) and EBIDTA margin of ~22% for FY14.
Though the stock is costlier than its peers at the CMP, we are positive on future outlook of the
company with re-structuring benefits due to accrue and expected better performance of its UK
and US subsidiaries.
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