Summary
of Contents
STOCK UPDATE
Unichem
Laboratories Cluster: Apple Green Recommendation:
Buy Price target: Rs360 Current market price: Rs265
Gearing up
Key points
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The domestic formulation business of Unichem
Laboratories (Unichem) contributes 65% of its consolidated
revenues. With a therapy-focused field force, expanding reach in
semi-urban and rural areas, a steady stream of new product
launches and a strong brand building ability, we believe, this
business will organically grow at a CAGR of 12.8% over
FY2006-08E.
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Niche Generics (Niche), which has recently
become a wholly owned subsidiary of Unichem, will be used to
expand into the European market. With the shift of Niche's
manufacturing base to India, Unichem will also derive cost
synergies. Against the current turnover of GBP12.3 million, we
expect Niche to record sales of GBP12 million in FY2007E and of
GBP13 million in FY2008E. Further, Niche is expected to report
losses to the tune of GBP1-1.5 million in FY2007 and break even in
FY2008.
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For the USA Unichem plans to develop a
portfolio of 25-30 products over the next two to three years.
These products will be sold through its marketing partners in the
USA. Unichem has already filed two ANDAs, and plans to file
another two to three in the current fiscal and eight to ten per
year from FY2008 onwards. Even though the US revenues will start
flowing in towards the second half of FY2008, the full potential
of the US business will be realised only from FY2009
onwards.
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Unichem has set up wholly owned subsidiaries in
South Africa, Brazil, the UK (Niche) and the USA in order to carry
out its operations in those markets. The subsidiaries have not
started generating revenues as yet. With increasing product
registrations, the management expects the subsidiaries in South
Africa and Brazil to start generating revenues in FY2008 and break
even in FY2009.
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We expect Unichem's margin to improve by 70
basis points over FY2006-08. While the rising R&D cost due to
a ramp-up in filings will put pressure on the margin, the
improving product mix, the rising share of exports and excise
savings arising from the shift of domestic manufacturing to the
Baddi plant will aid the margin growth.
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In view of the M9FY2007 financial performance
of Unichem, we are revising our estimates for the company. We are
downgrading our FY2007 sales projections by 3.2%, and the profit
and EPS projections by around 3.8% each. We are also marginally
upgrading our FY2008 estimates. Our revised earnings estimates now
stand at Rs23.8 per share for FY2007 and Rs28.5 per share for
FY2008. At the current market price of Rs265, the stock is trading
at 11.1x its FY2007E earnings and 9.3x its FY2008E earnings, on a
stand-alone basis. We maintain our Buy recommendation on Unichem
with a price target of
Rs360. |