Unichem Laboratories Ltd BUY CMP-175.00

Unichem Laboratories: On a healthy track

Besides branded formulations, which are at the core of it business, Unichem alsomanufactures active pharmaceutical ingredients (APIs or bulk actives) and has strongpresence in niche therapy areas of cardiology, neurology, and anti-infectives. Currently,the top 25 brands contribute approximately 67% of the company’s domestic revenue. Itsdomestic formulations’ portfolio revenue comprises 63% from chronic therapies and 37%from acute therapies. It entered into two new therapeutic segments, i.e., hospitalproducts and gynecology in the financial ended March 2012 (FY 2012).

Unitech launched 12 new products in various therapeutic segments like cardiology andneurology in the last financial year. Cardiology continues to be the dominant segment.Approximately 75% of its revenue comes from cardiology, anti-infectives, and neurologytherapeutic formulations. The top 10 brands of the company are Ampoxin, Losar, Losar H,Linox, Serta, Telsar, TG-Tor, Trika, Unienzyme and Vizylac.

  Unichem’s twin focus in the API business is contract development and manufacturingat a reasonable margin and backward integration with its formulation business throughcost-effective processes. There are strategies in place to expand customer base in newgeographies, which should drive growth in the coming years.

  Backed by a highly capable and motivated team of nearly 3,000 people, Unichem isheadquartered in Mumbai, India, and has six drug manufacturing locations across thecountry. In keeping with its commitment to benchmark quality standards, several of thecompany’s facilities have been accredited by international regulators such as the USFDA, ISO, UK MHRA, MCC (South Africa), WHO (Geneva), and TGA (Australia).

  Unichem has presence in over 20 countries across five continents. It has fourwholly-owned subsidiaries in UK, USA, Brazil, and South Africa. Apart from this, thecompany has a network of distribution and marketing alliances in the, Nepal, South-EastAsian region, Europe and Latin America.

  Unichem has expanded its R&D facility in Mumbai to spearhead research in novel drugdelivery systems (NDDS) and chemically synthesize non-infringing routes for themanufacture of medical products directed at regulated markets. In its effort to driveinnovation, the company has established a proprietary pharma technology development centrein Goa to focus on the development of generic formulations comprising immediate release aswell as NDDS and abbreviated new drug applications (Andas) exclusively for the US market.The facility has also been equipped to handle the development of formulation for newchemical entities (NCEs). Further, it has also established Biotech facility in Goa toinvent, design, develop and commercialize biotech and biosimilar products.

  To expand its global footprint, Unichem has actively undertaken efforts to developstrategic alliances and partnerships with companies where there is a clear synergy. Thecompany works with multinational pharmaceutical research organisations to developformulations. It is also in collaboration with generic companies to fulfill their APIneeds and develop formulations for them to be supplied in regulated markets. There areseveral development programs running to supply cost-effective advance intermediatesrequired for NCEs. Several dossiers have been filed on behalf of multinational genericcompanies. Unichem has also obtained approvals and supplied formulated products from theirmanufacturing plants for regulated markets.

  Unichem’s sales jumped 40% to Rs 264.86 crore and the operating profit marginimproved 380 basis points to 18.0% from 14.3%, taking OP up 78% to Rs 47.802 crore and PAT112% to Rs 33.14 crore in the quarter ended June 2012. Domestic branded formulationsrevenue grew 21.0% to Rs 168.49 crore compared with the corresponding quarter of theprevious year an51.4% on a sequential quarter. The increase was largely driven by thechronic segment, cardiac and neurology, which brought in around 65% of revenue.

  The international formulation business income spurted 162.4% to Rs 65.62 crore over ayear ago, led by commercialisation of the Ghaziabad (Uttar Pradesh) plant in the thirdquarter of the fiscal ended March 2012 (FY 2012) and favourable currency movements and by20.7% over the quarter.

  The domestic API business jumped 74.2% to Rs 7.63 crore in the June 2012 quartercompared with the corresponding quarter of the previous year and 33.3% over the March 2012quarter. The international API sales expanded 19.5% to Rs 21.57 crore over the yearcompared with a corresponding quarter of the previous year and 13.3% over the quarter.

  We expect Unichem to register sales of Rs 1032.91 crore and net profit of Rs 132.7crore in FY 2013. EPS works out to Rs 14.7. The share price trades at Rs 175. P/E worksout to 12.2
 

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Unichem Lab: Standalone financials
	1003(12)	1103(12)	1203(12)	1303(12P)
Sales	690.6	764.74	803.19	1032.91
OPM (%)	26	21.1	15.9	18.8
OP	179.77	161.18	127.47	193.73
Other inc.	6.58	7.96	9.39	17.83
PBIDT	186.35	169.14	136.86	211.56
Interest	0.51	1.95	3.3	4.81
PBDT	185.84	167.2	133.56	206.75
Dep.	21.47	27.22	28.29	35.21
PBT	164.37	139.98	105.27	171.54
Tax	30.43	31.48	22.81	38.84
PAT	133.94	108.5	82.46	132.7
EPS (Rs)*	14.8	12	9.1	14.7
*Annualised on equity of Rs 18.07 crore: Face value of Rs 2 each. (P): Projections. Figures in crore.
Source Capitaline Databases