Hold Unichem Laboratories; target of Rs 206: ICICIdirect

ICICIdirect.com has recommended hold rating on Unichem Laboratories with a target price of Rs 206, in its research report dated October 21, 2014.

November 10, 2014 / 19:03 IST

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ICICIdirect.com's report on Unichem Laboratories

Revenues grew just~3% YoY to Rs 278.2 crore (I-direct estimate: Rs 296.6 crore) on the back of 25% growth in export formulations to Rs 78.9 crore. Domestic formulations continued to struggle and declined 4% to Rs 166.6 crore

EBITDA margins declined 660 bps YoY to 12% (I-direct estimate: 16%) on account of a sharp decline in gross profit margins and higher employee cost. Gross profit margins declined 480 bps to 60.3% due to negative growth in the high margin domestic formulations business

Net profit declined 38% YoY to Rs 22.3 crore, below I-direct estimate of Rs 28.4 crore due to a decline in EBITDA margins "Unichem is yet to come to grips with the domestic formulations business despite owning a sound product basket with chronic focus. Whether it is the so-called conversion exercise from distributor-driven model to C&F driven or the impact of NLEM, this core segment has underperformed expectations in the last few quarters. This is affecting the company’s profitability negatively and pains in the system may sustain for some more time. In this backdrop, we have cut down our FY15, FY16 estimates. The scenario is likely to change slowly as the management has indicated that only 25% of domestic formulations are currently via the distribution channel. Export formulations, on the other hand, are likely to provide some solace on the back of incremental US filings and subsequent launches. We have rolled over our estimates to incorporate FY17 numbers to capture normalised growth. We expect revenue, EBITDA and profit to grow at a CAGR of 10.4%, 14.7% and 10.9%, respectively, in FY14-17E. Our new target price is Rs 206, based on 10x FY17E EPS of Rs 20.6. Hold the stock", says ICICIdirect.com research report.

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