unichem fullerton april 13

7/28/2019 Unichem Fullerton April 13

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SE Code: 506690 NSE Code: UNICHEMLAB Reuters Code: UNLB.BO Bloomberg Code: UL:INUnichem Laboratories Limited (Unichem) is an integratedpharmaceutical company with strong presence in domesticormulations market. The company enjoys strong foothold inhe chronic segment having leadership in cardiology and

neurology segments. It has demonstrated its ability to buildarge brands in growing categories (like its ` 1.6bn brand -

Losar in cardiac care) by retaining prescribers and generatingnew prescriptions at family physician level.

Domestic business growth which slowed down in FY12 has revivedin 9MFY13 led by various initiatives taken by the company suchas increased focus on prescription generation, strong addition tothe field force, developing second-tier of major brands and changein the distribution model. The company is also developingdermatology & gynaecology portfolio through addition of newMRs. We believe the growth momentum to continue and revenueexpected to grow at CAGR 18% for FY12-FY14E.

Unichem is expected to enhance presence in US on back of newproduct launches, despite being the late entrant. It has filed for27 ANDAs till date and has 11 approvals of which 9 are launchedin US. It has guided for 1-2 filing per quarter in US going ahead.

Significant capacities at Ghaziabad, Sikkim and Baddi placesUnichem in a better position to attract contract manufacturing

agreements with MNCs from its facilities. Contract Research andManufacturing Services (CRAMS) as a segment could be a bigopportunity for the company and one new contract expected inFY14 would spur growth next fiscal.

Unichems debt free balance sheet enables it to explore neworganic and inorganic growth opportunities. The sale of MadhyaPradesh based new formulation manufacturing facility to MylanLaboratories Limited (Mylan) for a total consideration of ` 1.6 bnwill further bolster the companys cash position. Revenues andearnings are expected to clock 19.5% and 43.7% CAGRrespectively over FY12-14E, with an EPS of ` 16.3 in FY14E.

Key Risk

Break-even of Niche Generics Ltd (UK Subsidiary) and UnichemPharmaceuticals USA Inc. (US Subsidiary) has been delayed dueto lower growth in European market and delay for approvals byUSFDA in US market. However, we believe both the subsidiariesto gain traction over the next two years with number of productslined up for approvals.

Valuation

Unichem has taken the necessary steps to revive the domesticormulations business which would fuel the future growth. Continuousield force addition has turned productive during the year. At the CMP,he stock is trading at 10.3x FY14 E earnings and looks attractive,

considering its balance sheet strength. We recommend a BUY with aarget price of ` 212 based on 13x FY 14E earnings.

One year Price Chart

Rating BUYCMP ( ` ) 168Target ( ` ) 212Potential Upside ~26.0%Duration *Long Term

52 week H/L ( ` ) 217/124

All time High ( ` ) 269Decline from 52WH (%) 22.6

Rise from 52WL (%) 35.5Beta 1.3Mkt. Cap ( ` bn) 15.2Enterprise Value ( ` bn) 15.4

ShareholdingPattern Dec12 Sep12 Diff.

Promoters 49.53 49.53 0.00

FII 3.82 4.02 (0.20)

DII 10.15 9.93 0.22

Others 36.50 36.52 (0.02)

Market Data

FinancialYear ending FY11A FY12A FY13E FY14E

Revenue ( ` 8.2 8.7 10.7 12.5EBITDA ( `bn) 1.5 1.2 1.7 2.2Net Profit( ` mn) 950 713 1,175 1,471

Adj EPS ( ` ) 10.5 7.9 13.0 16.3P/E (x) 16.0 21.3 12.9 10.3P/BV (x) 2.5 2.3 2.1 1.7EV/EBITDA

x10.3 13.1 8.7 6.2

ROCE (%) 18.1 12.7 18.5 19.3ROE (%) 15.4 10.8 15.8 16.0

Financial snapshot

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Unichem Laboratories Ltd. April 11, 2013

*Duration: Long term (1year),Medium term (6 months) & Short term (3 months)


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Formulations business drives the Q3FY13 and 9MFY13 performance

Unichem reported 4.5% YoY standalone revenue growth to ` 2,325.8 mn in Q3FY13 led byboth the domestic and international formulation business, which grew 9.0% and 19.5%,respectively. Indian formulations business sales stood at ` 1,525 mn (contributes 66% tooverall sales) impacted by the dip in the acute portfolio. API sales in domestic marketdeclined 27.1% to ` 41.6 mn. Revenues from the International business were flat at ` 744.7mn despite 19.5% growth in the international formulations to ` 590.5 mn due to the sharp37.6% fall in revenues from Export API's at ` 154.2 mn.

Th e EBITDA margin strengthened 80bps YoY to 17.3% in Q3FY13 owing to lower APIcontribution. The net profit grew 24% YoY to ` 303.0 mn due to higher other income (50%YoY), lower interest cost (61% YoY) and decline in effective tax rate (740bps YoY to

15.5%).

omestic andernational formulationsiness grew 9.0% YoYd 19.5% YoY,spectively.

BITDA margin improvedbps YoY to 17.3%

wing to lower APIntribution.

Q3FY13 Segment revenue break-up (in ` mn)

Brazil, Unichempects to get 2 productprovals in nextarter.

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For 9MFY 13, Unichem s standal one revenues grew 24.8% YoY to ` 7,616.9 mn. DomesticBranded Formulations and International Formulation Business grew 16.8% and 70.0%,respectively compared to the corresponding nine months of the previous year. DomesticAPI business and International API business surged 7.4% and 7.9% on YoY basis,

respectively . The companys EBITDA margins improved 340bps to 18.8% owing to higherformulations sales. Profit before tax for the nine months ended December 31, 2012 stoodat ` 1,277 mn (9MFY12: ` 792 mn) and consequently the net profit came at ` 986 mn(9MFY12: ` 592 mn).

Niche Generics Limited, the 100% UK Subsidiary recorded sales of GBP 6.7 mn in 9MFY13as compared to GBP 7.4 mn in 9MFY12 and net loss of GBP 0.5 mn in 9MFY13 as againstloss of GBP 0.4 mn in 9MFY12.

Unichem Pharmaceuticals USA Inc., the 100% US Subsidiary sales grew 83.5% YoY to USD6.1 mn and net loss narrowed to USD 0.4 mn in 9MFY13 (9MFY12: USD 0.7 mn).

Unichem Pharmaceuticals Do Brasil Ltd, the 100% Brazilian Subsidiary recorded sales of Brazilian Reals 1.3 mn and net loss of Brazilian Reals of 2.3 mn in 9MFY13. In Brazil,company expects to get 2 product approvals in next quarter, which will improve itsearnings.

andalone revenuesew 24.8% YoY to616.9 mn in 9MFY13,

by higher domestic

d internationalmulation businesses.


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Strong presence in the domestic formulation business to augment growth

Domestic Formulations has been the mainstay of Unichems busi ness as it contributesaround 65% to the total revenues in 9MFY13. Domestic formulation market as per MATNovember, 2012 is estimated at ` 693.0 bn by AWACS. Unichem is ranked 17th in thedomestic formulations market with a market share of 2.2% in the covered or representativemarket. The compa nys portfolio composition is skewed towa rds chronic therapies. Around65% of its revenues come from chronic therapies, while the rest 35% come from acutetherapies. It addresses key therapeutic areas which include Cardiac care, Anti-diabetics,Neuro-psychiatry, Gastroenterologicals, Anti-infectives, Dermatology and Nutraceuticals etc.Of these, it has strong presence in niche therapy areas of cardiology, neurology, and anti-infectives (contributes around 75% of the total revenues). Cardiac care is the main segmentof the company as it constitutes approximately 47% of the domestic formulations sales andgrabbed 6.2% of market share in the representative market (market size ~ ` 53.2 bn,Source: AWACS MAT Nov. 2012).

Strong traction expected in domestic formulations business (in ` mn)

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Chronic contributes 65% of domestic revenue

nichem is ranked 17ththe domestic

rmulations market withmarket share of 2.2%

the covered orpresentative market.round 65% of itsvenues come fromronic therapies, whilee rest 35% come fromute therapies.

omestic formulationssiness revenue to growCAGR 18.1% for FY12-E

Therapeutic segmental contribution


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Unichem has demonstrated its ability to build large brands in growing categories (its brandLOSAR is a ` 1.6 bn brand in the cardiovascular segment). Its top 4 brands includesAmpoxin group, Losar-H, Unienzyme, and LOSAR and are featured among the top 300Indian pharmaceutical brands during MAT November, 2012. Currently the companys top 25brands contribute ~67% to the domestic revenues.

The company has restructured its business to provide momentum to the core domesticformulations business. The restructuring measures include portfolio prioritization and salesforce alignment to improve the coverage of the existing portfolio and strengthening its majorsecond tier brands. The new Gynaecology and Dermatology divisions have been started withaddition of around 150 MRs during this year. Moreover, the company plans to enhance itsfocus in diabetic segment which is expected to grow at a pace.

nichem has reorganizedproduct portfolio by

mproving penetration of e existing brands andvelopment of otherajor brands.

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Focus on improving penetration of the existing products and development of otherpower brands

Unichem has reorganized its product portfolio by improving penetration of the existingbrands in order to restore the momentum in its core business of domestic formulations. Thecompany took measures to improve the penetration of its flagship brands including Losarand Ampoxin.

Losar is the flagship brand of Unisearch CV (Cardiovascular Division) and the only brand of the company to cross the milestone of ` 1.0 bn in primary sales. It is also enjoys the topposition among the anti-hypertensive brands in Indian pharmaceutical market. The companyhas significantly generated new LOSAR prescriptions all specialties and initiated aggressiveexpansion at the family physician level to increase the penetration.

Ampoxin brand (anti-infective) has the leadership position in the Ampicillin + Cloxacillincombination market, in both injectable as well as the solid market. Ampicillin + Cloxacillin

combination is taken to tackle the menace of drug-resistant infections and bacteria. Thecompany is taking corrective measures to arrest the slowdown in this market.

op 4 brands - Ampoxinoup, Losar-H,nienzyme, and LOSARd are featured amonge top 300 Indian

harmaceutical brandsuring MAT November,012.

Unichem Laboratories Represented/Covered Market

Representative Mkt. Unichem LaboratoriesTherapy MarketSegment

Size( ` bn)

%Growth

Size( ` mn) % Share

%Growth

Cardiac Care 53.2 18.4 3,280 6.2 7.3

Anti-infectives 88.2 14.7 1,110 1.2 6.6

Neuro-Psychiatry 22.3 14.0 880 3.9 (0.3)

Gastroenterologicals 35.7 16.5 760 2.1 32.0

Anti-Diabetic 21.3 23.9 240 1.1 4.6

Respiratory 11.4 14.9 220 1.9 8.4Musculoskeletal 26.2 11.7 220 0.8 (4.0)

Nutraceuticals 29.5 12.2 160 0.5 (6.9)

Dermatological 11.8 18.9 130 1.1 (16.3)

Haematinics 10.3 9.8 10 0.1 (29.9)

Others 11.1 13.5 40 0.3 312.0

TOTAL 321.2 15.5 7,040 2.2 7.3

ardiology, neurology,nd anti-infectivesontribute around 75%

the total revenues.


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MATNov.'12 (in

` mn)

% YoYGrowth

% MarketShare

% YoYGrowth

%Contributionto Revenue

Total Revenue 7,040 7.3 1.0 8.2 100.0

Losar Group 1,620 5.3 31.1 8.1 23.0

Ampoxin Group 590 1.1 30.8 5.8 8.6

UnienzymeGroup 410 44.5 14 53.9 6.2

Telsar Group 400 25.7 4.7 24.3 5.6

Trika Group 350 1.1 22.7 0.1 4.9

Olsar Group 370 20.9 7.1 12.6 3.7

Vizylac 220 30.4 13.1 30 3.2

Metride Group 180 12.2 1.5 8.3 2.5

TG-Tor Group 170 (14.3) 1.6 (12.4) 2.2

Linox 150 22.3 11.9 23.8 2.3

sar is the only brand of e company to cross thelestone of ` 1.0 bn inmary sales.

st growing brandsELSAR and OLSARnerated revenues of 00 mn and ` 370 mn,pectively.

Meanwhile, Unichem also focused on powering its next phase of products with intend to lowertheir dependence on their existing brands (Ampoxin and Losar group which jointly contributedabout 57% of the revenues in FY10, now their share stood at 31.6% to the revenues). Thecompany has successfully developed brands like TELSAR and OLSAR which offer high growthpotential. The company is leveraging the brand equity of its existing flagship brands tonurture the growth of its second tier power brands. TELSAR group of products, used forhypertension have generated revenues of ` 400 mn . Other group of brands i.e. OLSAR, usedfor cardiac care, has generated revenues of ` 370 mn. It is also expanding its sales force inorder to capture the larger domestic market share.

Started reaping rewards of restructuring and corrective measures undertaken overthe past few years

Unichem s restructuring exercise taken over the past few years has been delivering positiveresults for the company as domestic branded formulations and API sales grew ~17% and7.4% on YoY basis, respectively during 9MFY 13. The company has changed its distributionmodel to companys own C&F agents from the earlier distributors model. The motive behindtransition is that the company wants to lower its dependence on distributors and also to avoidtax related issues when expected GST roll-out takes place next year. It also target todecrease inventory days to 30-40 days from the current 50-60 days for the domesticformulation business. A change in the distribution model involved de-stocking at thedistributors end or larger revenue share from C&F agents. C&F agents work on lower marginsof 3% than distributors which charge around 4.5%. The company hopes to improve thebenefits from larger sales primarily through C&F agents in future. As per the management,the attritions rate of MR has come down due to change in the HR policy which also facilitatedhigher growth in the domestic formulations business.

We expect the distribution model re-alignment to provide impetus to the future growthtrajectory.

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mpoxin and Losar grouphich jointly contributedout 57% of thevenues in FY10, noweir share stood at.6% to the revenues.

Brand Group Scenario

ansition fromtributors model to C&F ents has beenlivering positive resultsthe company.

tritions rate of MR s hasme down due to changethe HR policy.


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Spare and additional capacities to open up additional CRAMS opportunities

The company has established capacities to cater both domestic and international markets.Over the past few years, it had done large capital expenditure to build-up the infrastructure toenhance its domestic and international business. It had invested in upgrading and expandingmanufacturing and research facilities at multiple locations. Commissioned Sikkim and Baddiplant for Cephalosporin in FY10, expanded packaging facility and constructed R&D centre atGoa in FY 12. Considering these capacities, Unichem exploits attractive opportunities throughstrategic alliances in CRAMS space. The company is currently supplying to an MNC customerfrom its Ghaziabad facility and one new contract is expected in FY 14.

Vertically integrated APIs business

Unichems APIs division which contributed over 10% to the revenues in 9MFY 13 , supplies APIsand intermediates to both domestic as well as international regulated pla yers. The companysRoha (Maharashtra) and Pithampur (MP) API facilities, both, are USFDA approved. More than65% of its APIs are exported mainly to Europe which is about 75% of total exports. Therationale behind its API Business is to contribute to the business performance of the companythrough the marketing of APIs globally and to capture the contractual supply opportunities inthe drug i ntermediates business. Moreover, it also provides necessary vertical integration toits formulation business which ensures regular supplies of the intermediates and helps inachieving cost efficiency.

Is division whichntributed over 10% to

revenues in 9MFY13, pplies APIs andermediates to bothmestic as well asernational regulatedyers.

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e company is currentlyplying to an MNCtomer from itsaziabad facility and one

w contract is expected in14

Growth trajectory for API business (in ` mn)

Robust Balance Sheet to augment organic and inorganic growth

Unichem s balance sheet is debt free. The company is very well placed to raise the fundsthrough internal accruals or going for marginal debt for future expansion purpose. Thecompany is planning to set up a biotech facility in Goa for which it has acquired additional landnear to its existing facility. It is also exploring inorganic growth opportunities for whichfunding would not be an issue given its strong balance sheet.

Moreover, the company recently sold the new formulation manufacturing unit located atPithampur Special Economic Zone (SEZ), Madhya Pradesh, to Mylan for a total considerationof ` 1.6 bn. The exercise was done on slump sale basis. This sale will bolster the companyscash position further.

Unichem is eyeing acquisitions in the space of dermatology, women health care or ophthalmicspace and also in similar product lines, which would help in expanding their market share. The

management of the company has also shown keen interest in therapeutic areas of gynecologyand hospitals segment which can be the future growth drivers for the company. We believethat capacity expansion and the inorganic growth would provide additional incremental growthfor the company.

e of Madhya Pradeshed new formulationnufacturing facility tolan for a total

nsideration of ` 1.6 bnl bolster the companysh position.


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Y/E ( ` million) FY11A FY12A FY13E FY14E

Share Capital 180 181 181 181

Reserve andsurplus 5,997 6,425 7,232 8,986

Net Worth 6,177 6,606 7,413 9,167

Long term debt 190 205 238 226

Other liabilities 227 235 241 246

Currentliabilities 1,761 2,333 2,874 3,285

Long termprovisions 79 102 124 144

Deferred TaxLiabilities 378 385 385 385

Total equityand liabilities 8,813 9,866 11,275 13,452

Goodwill 15 15 15 15

Fixed Assets 4,386 5,196 5,301 5,033

Loans &

advances163 260 324 377

Current Assets 4,248 4,393 5,634 8,026

Total assets 8,813 9,866 11,275 13,452

Balance Sheet (Consolidated)

Y/E ( ` million) FY11A FY12A FY13E FY14E

Net Sales 8,240 8,755 10,747 12,504

Expenses 6,741 7,582 9,001 10,328

EBITDA 1,500 1,173 1,745 2,176

EBITDA margin(%) 18.2 13.4 16.2 17.4

Other Income 69 86 154 154

Depreciation 292 304 343 367

EBIT 1,276 954 1,556 1,963

Interest 9 14 27 28

Profit BeforeTax 1,267 940 1,529 1,935

Tax 317 228 355 464

Exceptionalgain/(loss) 0 0 0 650

Adj Net Profit 950 713 1,175 1,471

Reported NetProfit 950 713 1,175 2,121

NPM (%) 11.5 8.1 10.9 11.8

Profit & Loss Account (Consolidated)

Key Ratios (Consolidated)

Y/E FY11A FY12A FY13E FY14EEBITDA Margin (%) 18.2 13.4 16.2 17.4

EBIT Margin (%) 15.5 10.9 14.5 15.7

NPM (%) 11.5 8.1 10.9 11.8ROCE (%) 18.1 12.7 18.5 19.3

ROE (%) 15.4 10.8 15.8 16.0

Adj EPS ( ` ) 10.5 7.9 13.0 16.3

P/E (x) 16.0 21.3 12.9 10.3

BVPS ( ` ) 68.5 73.1 82.1 101.5

P/BVPS (x) 2.5 2.3 2.1 1.7EV/OperatingIncome (x) 9.9 12.2 8.0 5.8

EV/EBITDA (x) 10.3 13.1 8.7 6.2

EV/EBIT (x) 12.1 16.2 9.7 6.9

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Valuation and view

We expect Unichem s revenues to grow at a CAGR of 19.5% and PAT to grow at a CAGR of 43.7% over FY12-14E. The necessary steps taken by the company to revivethe domestic formulations business would fuel the futuregrowth.

Approval of new products by USFDA, any CRAMS deal withMNC, break-even of international subsidiaries and organicor inorganic expansion would act as potential triggers,further.

At a current market price (CMP) of ` 168, the stock tradesat 12.9x FY13E and of 10.3x FY14E, earnings. Werecommend BUY with a target price of ` 212, arrived at13x FY14E EPS which implies potential upside of 26.0% tothe CMP from long term (1 year) perspective.


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Disclaimer: This document is prepared by Dion Global Solutions Limited exclusively for Fullerton Securities & Wealth Advisors Ltd(FSWA) customers. This document is not for public distribution and has been furnished to you solely for your information and you arenotified that you should not further copy, modify, use or distribute the information in any way unless you obtain written consent fromFSWA. The information provided in the document is on the "best effort" basis and is subject to change depending on several factors,including general market conditions. While reasonable care has been taken in compiling the document the accuracy and completenesscannot be guaranteed either by FSWA or any other person or entity associated with it. The returns shown are merely estimates andforecasts and are not necessarily indicative of future performance and can change without notice. The document is prepared only foryour information and is not sufficient for making an investment decision. You should rely on your own investigations and seekprofessional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either arising fromthe use of this document or due to any inadvertent error in the information contained in this document. Financial investments carryrisks including principal risk and therefore you should seek professional advice prior to making any investment decision. The risk of anylosses occurring by use of this report or document will be entirely yours. The investments covered in this report are not guaranteed.Also past performance of an investment or fund is not an indication of future performance. FSWA, its affiliates, or associates, or anyregulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of investmentdecisions made by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financialproduct. FSWA reserves the right to modify or alter the terms and conditions of the use of this service or discontinue, temporarily orpermanently, the information and services provided (or any part thereof) at any time, with or without prior notice and FSWA shall notbe liable to you for any suspension, modification, or termination of the information and services provided herein.

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unichem fullerton april 13

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