Buy Neuland Labs; target of Rs 920: HDFC Securities

HDFC Securities' research report on Neuland Labs

NLL continued to improve its operational performance with Rs 184mn EBITDA, 10.7% margin and Rs 67mn profits, up 16%, 142bps and 46% QoQ respectively. This was largely driven by backward integration and commissioning of Unit-3 for Intermediates. We expect margin to expand further going into FY20/21E with the help of profitable products like Austedo/Salmeterol APIs and increased backward integration. On a high base of 4QFY18, NLL reported 8% YoY growth to Rs 1.7bn, driven by 18% YoY growth in Niche and 5% YoY growth in Prime APIs. CMS declined 12% YoY to Rs 311mn in 4QFY19. Levetiracetam and Levofloxacin in Prime API, and Dorzolamide, Deferasirox and Donepezil in Niche API were the
key growth contributors. CMS segment has witnessed decline on account of volatility in orders. Overall, the management indicated that CMS revenues will continue to grow on the back of a higher number of active projects and increased revenues from existing commercial supplies. Teva’s Austedo remains the key molecule in this portfolio. We believe it could add Rs 20/sh EPS at its peak sales potential of US$ 1bn (Teva’s formulation revenues). We expect CMS segment to grow ~40% over FY19-21E. Net debt stood at Rs 1.6bn, down 41% YoY. Net D/E came in at 0.2x, as against 0.5x on Mar-18.

Outlook

We maintain BUY on NLL following a beat on our estimates. Our TP is revised to Rs 920/sh (14x FY21E EPS). Hopes are hinged on ramp up in critical products like Austedo and Salmeterol.

For all recommendations report, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.