Buy Unichem Laboratories; target of Rs 330: ICICI Direct

ICICI Direct's report on Unichem Laboratories• Revenues grew 9.9% YoY to Rs 305.6 crore against I-direct estimate of Rs 301.8 crore on account of 13.1% YoY growth in domestic formulations to Rs 188.5 crore (I-direct estimate: Rs 174.9 crore) and 43% growth in US sales to Rs 51 crore• EBITDA margins declined 73 bps YoY to 11.3% against I-direct estimate of 13.6% due to the lower-than-expected gross profit margins. GPM was at 60.4% (I-direct estimates of 62.7%). EBITDA increased 3.1% YoY to Rs 34.4 crore (I-direct estimate of Rs 40.9 crore).• Net profit increased a mere 3.5% YoY to Rs 23.1 crore (I-direct estimate:Rs 27.7 crore) owing to a below expected operational performanceDomestic formulations growth has shown signs of recovery in H1FY16. The management’s focus on restructuring the matured portfolio, which accounts for 47% of the overall pie and comprises legacy but slow moving brands seems to be working. The next task for the management is to bring the growth rate of this portfolio to the industry level. Export formulations, on the other hand, are likely to maintain the growth tempo on the back of incremental US filings and subsequent launches. Despite an improvement in domestic growth and a strong US performance, the company is still struggling to recover its margins. Higher plant level expenses and R&D spend are taking a toll on margins but the management expects the scenario to improve, going ahead, on the back of an improvement in the product mix. We expect revenues, EBITDA, profit to grow at a CAGR of 14.8%, 42.9% and 41.5%, respectively, in FY15-18E. As we roll over our estimates to FY18, our new target price is Rs 330, based on 14x FY18E EPS of Rs 23.5, says ICICI Direct research report.For all recommendations, 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.

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