Merrill Lynch bullish on Matrix Labs, target of Rs 290

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Merrill Lynch bullish on Matrix Labs, target of Rs 290

Broking house, Merrill Lynch is bullish on Matrix Laboratories and has maintained buy rating on the stock with a price target of Rs 290.

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Broking house, Merrill Lynch is bullish on Matrix Laboratories and has maintained buy rating on the stock with a price target of Rs 290.

The Merrill Lynch report on Matrix Laboratories:

Strategic supply contracts for API business being weighed

"Given the volatile nature of the API business (over 30% of FY06 revenues), Matrix is also working towards building long term supply deals with customers. This is with the intention of becoming a one-stop API shop to select customers over and above the existing product-specific deals with several generic players. We expect more clarity on this front over the next few quarters."

Base business update

• Management is targeting to achieve close to US USD 400 million revenues for FY07E (vs MLe of US USD 345 million; 26% growth YoY). This is expected to be driven by over US USD 100 million revenues from DocPharma; about US USD 60-65 million revenues from the three acquisitions/JVs - MChem, FCC and Concord, US USD 85 million revenues from ARVs (including supplies to Aspen JV) and the balance from CRAMS/APIs.
• Potential sale of DocPharma medical devices business could be completed over the next two months which will aid in reduction of the US USD 100 million bridge loan.
• FY07E will likely reflect the synergies from full year consolidation impact of all major acquisitions, Doc Pharma (Belgium), MChem (China), and Concord (India).
• Potential 6-10 new launches each from DocPharma as well as in APIs
  starting Q2FY07E; 20%+ growth outlook in formulations (Doc Pharma) and API business.
• Matrix has begun ARV supplies to Aspen JV starting 4QFY06 (40% revenue CAGR).
• Strong 40% revenue CAGR (FY06-08E) in contract manufacturing anticipated, driven by recently signed new contracts (eg. GSK).

"Maintain Buy with our PO of Rs 290 per share, noting attractive valuations and strong outlook."

Company description

"Matrix is one of India's fastest-growing API manufacturers. Focusing on regulated markets such as the US and the EU, it has a range of products in several therapies, eg, CNS and anti-AIDS. Following its recent USD 266 million acquisition of DocPharma, Matrix has ventured into the high-growth European formulations market. Four of its manufacturing facilities are approved by the US FDA. Its combined FDA approved capacity is one of the largest in the country."