Hold Unichem Laboratories; target of Rs 200: KRChoksey

KRChoksey report on Unichem Laboratories

Total revenues showed muted growth of 5.5% YoY to Rs 256crs on account of lower growth in domestic business impacted due to slow pick up in chronic portfolio; however export formulation business posted growth of 11% YoY. EBIDTA degrew by 49.7% YoY to Rs 16crs & EBITDA margins stood at 6.3% contracted by 680bps YoY mainly due to lower gross margins & higher operating expenses on account of higher marketing expenses incurred in domestic & US business. However, gross margins improved sequentially. After adjusting forex loss, APAT degrew by 64.7% YoY to Rs 11crs on back of lower operating performance. EPS during the quarter stood at Rs 1.2

International business showed modest growth of 9.1% YoY & 16.1% during Q4FY15 & FY15 respectively. Export formulation business grew by 11% YoY & 23% during Q4FY15 & FY15 respectively. CRAMs business contributed around 9% of overall consolidated sales. US & EMs business posted strong growth. Company’s total ANDA filings in US stands at 34 and received 17 approvals (2 tentative) out of which 12 products have been commercialized till date. Tentative approvals are likely to be launched after the patent expiry of the products. Management has identified 8-10 molecules from CNS, CVS & pain management & oral prefilled syringes to be filed beyond FY15. US subsidiary reported net sales of USD 24.9mn & PBT of around USD 1.8mn during FY15. Niche Generics (UK subsidiary) recorded sales of GBP 9.25mn and Net loss of GBP 0.7mn during FY15 due to pricing pressure in local business. We believe Niche Generics will be able to breakeven in FY16.

Valuation: "We believe domestic growth will improve gradually in next few quarters on account of pick up in volume growth of chronic portfolio & exports will continue to show modest growth. We expect operating margins to improve in FY16 & FY17 on account of increase in gross margins on back of recovery in domestic sales. We maintain our rating to ‘HOLD’ with target price of Rs 200 at Rs13xFY17E EPS", says KRChoksey research report.

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