After giving a flatish performance in Q1, Rakesh Parikh, VP-Finance & CFO, Unichem Labs expects the company’s performance says he expects things to pick up only in Q3 onwards. "We expect Q2 to remain more or less in line with Q1 with our emphasis on margin expansion continuing," he told CNBC-TV18.
Below is an edited transcript of the interview on CNBC-TV18
Q: Your Q1 performance has been quite flat. Going forward, are you expecting it to change? Can we expect significant jump for the full year?
A: For the last full year, the company had grown more than 20 percent as far as the topline is concerned. The margins improved and the bottomline grew even much higher than that around 13-14 percent. On that basis, in spite of the issues in the domestic business, we could still manage to see a kind of 4-5 percent growth. Looking at the last year’s results, if you are comparing year-on-year (Y-o-Y), we expect Q2 to remain more or less in line with Q1 with our emphasis on margin expansion continuing.
However, this partly gets offset by the Drug Price Control Order (DPCO) and the National List of Essential Medicines (NELM) impact, which has come in the domestic business. Going forward, talking about the full year, maybe Q3 and Q4 after this one-time structural adjustment takes place in Q2, Q3 and Q4 growth should definitely be better.
Q: How is the rupee depreciation impacting Unichem Laboratories?
A: Unichem is a net exporter. So from that angle, we have no loans in terms of foreign currencies and all. Definitely it is a positive for the company. We don’t have any exotic derivatives or those kinds of things. So net-net, it will benefit but definitely we do have some imports. To the extent my import cost goes up.
However, the issue is not on the direct impact on Unichem Laboratories because the direct impact is favourable. Obviously, the people to whom we are exporting will also try and pitch in and renegotiate things plus the impact which rupee may have on the overall economy is what we have to be watchful because if things get bad and inflation has to be controlled, those kind of impact can have an overall on the pharmaceuticals industry which would definitely then affect Unichem. Otherwise going forward per se, rupee depreciation has been beneficial for Unichem. If you see other income for Q1, it has been about more than Rs 5.5 crore as a gain.
Q: What about the domestic formulation business, how is the industry doing in this quarter and how is Unichem doing as opposed to the industry growth rate?
A: As everybody is aware, this implementation of the new drug pricing policy, the DPCO 2013 has come in place, the pricing started getting notified from middle of June onwards and with that 45 days impact that has started coming in. So there will be one-time adjustment in terms of the prices for those products which are coming as a part of the controlled category or the scheduled category as it is called. So around 20 percent of the industry is likely to get affected by that and Unichem also, the issue is more or less same.
However there are some products which are going out of it. In case of Unichem there is Ampoxin, which was earlier under the price control is now gone out of it. So there is a scope there where we can improve. But overall this mood affects the industry. In addition to the pricing, what has happened is that in some of the states because there has been a reduction in the margin and there could be some confusion for any new law, which comes in that has affected it and some of the states trade associations have been revolting because their margins have come down not only in terms of percentage but also in terms of the price becoming lower. So the net income of these trade channels gets reduced and they have been objecting because of which the destocking and all that is continuing, some of them are not lifting it up.
However, we feel that in this quarter we would see that one-time structural adjustment after which most of the prices would be the revised prices as implemented and once the stock offtake starts picking up, the destocking starts getting reversed then going forward we should see much better off. In the long-term being market based and allowing price increase based on wholesale price index should also help in the medium-term to the long-term to the industry.