Unichem Laboratories: Attractive valuation with a strong Balance Sheet

India Infoline News Service | Mumbai |

The company has 2100+ field force, which covers approximately 1,50,000 medical professionals and there are more than 4,500 stockists covering 2,00,000 retail outlets for Unichem.

CMP Rs166, Target Rs210, Upside 26.5%

Unichem laboratory (ULL), an integrated pharmaceutical company has a strong footprint in domestic formulation market. Domestic operations contribute around 75% to total revenues.  In the recent past, the company failed to keep pace with the competitors in the domestic market but now, after the completion of restructuring activity and improving operating parameters, the company is all set to post improvement in the margins and return ratio. We believe the rough phase for ULL is set to be over soon; the turnaround of overseas operations along with ramp up in domestic business and cost pressure rationalizing with incremental revenue will help ULL post robust growth.


Unichem’s four brands feature among the Top 300 Indian pharmaceutical brands and out of which two brands are in the Top 100 (Losar H- Rs790mn- 90th Rank and Losar- Rs680mn -100th Rank). Top 10 Brands contribute nearly 50% of the company’s domestic revenues. Domestic business will drive long term growth on leveraging on brands. Additionally, Company is also gradually entering developed markets to leverage upon its R&D and manufacturing capabilities. Unichem has presence in Europe through its 100% subsidiary Niche Generics having 33 products in the portfolio. It has direct sales operation in UK and Ireland and is exploring other territories like Australia, SA and Canada. We expect this venture to add meaningful contribution to EPS by FY14. In the US, the company has filed 29 ANDAs till date and has 15 approvals of which 9 have been launched.  We expect 2-3 filings every quarter. CRAMs business would also prove to be an interesting opportunity for ULL. 


We expect revenues to register 15% CAGR over FY13-15 and margins to expand to 15%. The company is a zero-debt company with a cumulative positive cash flow. The company is looking for acquisitions in therapy area to fill the gap in product offerings. We believe ULL’s valuation is attractive at 8.7x FY15E EPS. . We estimate the fair value of Unichem at Rs 210 and recommend BUY.


Financial summary

Y/e 31 Mar (Rs m)
FY12
FY13
FY14E
FY15E
Revenues
8,857
10,942
12,443
14,430
yoy growth (%)
6.4
23.5
13.7
16.0
Operating profit
1,183
1,743
2,199
2,613
OPM (%)
13.4
15.9
17.7
18.1
Reported PAT
712
1,133
1,453
1,739
yoy growth (%)
(25.0)
59.0
28.3
19.7
 
 
 
 
 
EPS (Rs)
7.9
12.5
16.1
19.2
P/E (x)
21.2
13.3
10.4
8.7
Price/Book (x)
2.3
2.1
1.8
1.5
EV/EBITDA (x)
12.9
8.7
6.7
5.6
Debt/Equity (x)
0.1
0.0
0.0
0.0
RoE (%)
11.1
16.3
18.5
19.1
RoCE (%)
13.1
18.6
21.6
22.5
Source: Company, India Infoline Research 
 

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