Domestic growth to be back on track backed by focused promotional strategy
Domestic formulation business faced hurdles in the market during Q1FY14 mainly on account
of inventory adjustment in domestic market on the onset of drug pricing policy, trade issues
in Maharashtra & lower industry growth. But we believe domestic business growth will be on
track as the company has already strengthened its field force domestically to 3000 including
managers and is now looking to improve its productivity (currently 2.9mn). Attrition rate has
also come down significantly to 11-12% (earlier 35%). The domestic restructuring exercise at
distributor’s end is almost over and now company has started focusing more on C&F agents &
inventory days have been reduced to 30 from 80. Currently 1/3rd business comes from C&F
agents & rest from distributors.
Unichem’s top 10 brands & top 50 brands contribute nearly 50% & 83% of domestic revenues
respectively. Among top 10 brands, Tg-Tor group & Ampoxin are posting flat growth due to
stiff competition from low cost players. Company is trying to improve growth in its matured
brands through focused promotional strategy on general physicians & also focusing on other
high growth brands like Unienzyme & Telsar group to improve its overall domestic growth.
We expect revenue CAGR of 12% over FY13-15E driven by sales productivity through
increased sales force & marketing strategies taken by the management.
Exports will post flat growth due to slowdown in contract manufacturing
Export formulation business is impacted due to pressures in contract manufacturing business
from Ghaziabad facility on account of price erosion seen in existing products supplied by the
company. We expect revenues of around `800mn from CMO business in FY14E & FY15E
respectively. However Emerging markets business & US will continue to do well. In Brazil 16
products have been filed out of which 2 products (Anti-infective & Pain therapy) are in
market. Management expects 2 more approvals (CNS & Cardiac therapy) in FY14. Company’s
total ANDA filings in US stands at 29 and received 15 approvals out of which 10 products have
been commercialized till date. Management gave guidance of 1-2 ANDAs filings per quarter
to increase total filings to 34-35 & 3-4 product launches in FY14.
Management has identified 10 molecules to be filed in FY14-15 mainly from CNS, CVS & pain
management & 10-15 oral prefilled syringes to be filed beyond FY15. Company sold its Indore
SEZ unit to Mylan for `1600mn & proceeds will be used for capex plan at its formulation, API
plants & pilot plant in bioscience segment. We have not built in any gain from this sale in our
estimates which will be done after FIPB approval. Company has excess capacity due to delay
in ANDA approvals & foresees a long gestation period for SEZ project to effectively contribute
to its topline & profits. On the contrary company intends to expand its Goa facility as it is
already approved which could be done at a lower cost & lower gestation period which in turn
will improve margins.
Retain Buy rating with the target price of `223
We expect company to post domestic growth better than industry growth on account of
improved productivity through increased field force however pricing policy impact will be
around 2-3% on domestic business. Overall Margins too are expected to improve by 120bps
in FY14E on back of strong growth from both the domestic business & focus on emerging
markets. We maintain our Buy rating with the revised target price of `223 based on
12xFY15E EPS of `18.6.
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Domestic formulation business faced hurdles in the market during Q1FY14 mainly on account
of inventory adjustment in domestic market on the onset of drug pricing policy, trade issues
in Maharashtra & lower industry growth. But we believe domestic business growth will be on
track as the company has already strengthened its field force domestically to 3000 including
managers and is now looking to improve its productivity (currently 2.9mn). Attrition rate has
also come down significantly to 11-12% (earlier 35%). The domestic restructuring exercise at
distributor’s end is almost over and now company has started focusing more on C&F agents &
inventory days have been reduced to 30 from 80. Currently 1/3rd business comes from C&F
agents & rest from distributors.
Unichem’s top 10 brands & top 50 brands contribute nearly 50% & 83% of domestic revenues
respectively. Among top 10 brands, Tg-Tor group & Ampoxin are posting flat growth due to
stiff competition from low cost players. Company is trying to improve growth in its matured
brands through focused promotional strategy on general physicians & also focusing on other
high growth brands like Unienzyme & Telsar group to improve its overall domestic growth.
We expect revenue CAGR of 12% over FY13-15E driven by sales productivity through
increased sales force & marketing strategies taken by the management.
Exports will post flat growth due to slowdown in contract manufacturing
Export formulation business is impacted due to pressures in contract manufacturing business
from Ghaziabad facility on account of price erosion seen in existing products supplied by the
company. We expect revenues of around `800mn from CMO business in FY14E & FY15E
respectively. However Emerging markets business & US will continue to do well. In Brazil 16
products have been filed out of which 2 products (Anti-infective & Pain therapy) are in
market. Management expects 2 more approvals (CNS & Cardiac therapy) in FY14. Company’s
total ANDA filings in US stands at 29 and received 15 approvals out of which 10 products have
been commercialized till date. Management gave guidance of 1-2 ANDAs filings per quarter
to increase total filings to 34-35 & 3-4 product launches in FY14.
Management has identified 10 molecules to be filed in FY14-15 mainly from CNS, CVS & pain
management & 10-15 oral prefilled syringes to be filed beyond FY15. Company sold its Indore
SEZ unit to Mylan for `1600mn & proceeds will be used for capex plan at its formulation, API
plants & pilot plant in bioscience segment. We have not built in any gain from this sale in our
estimates which will be done after FIPB approval. Company has excess capacity due to delay
in ANDA approvals & foresees a long gestation period for SEZ project to effectively contribute
to its topline & profits. On the contrary company intends to expand its Goa facility as it is
already approved which could be done at a lower cost & lower gestation period which in turn
will improve margins.
Retain Buy rating with the target price of `223
We expect company to post domestic growth better than industry growth on account of
improved productivity through increased field force however pricing policy impact will be
around 2-3% on domestic business. Overall Margins too are expected to improve by 120bps
in FY14E on back of strong growth from both the domestic business & focus on emerging
markets. We maintain our Buy rating with the revised target price of `223 based on
12xFY15E EPS of `18.6.
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