CMP 212.00

Target Price 233.00

ISIN: INE351A01035

JANUARY 22nd

2014

UNICHEM LABORATORIES LTD. Result Update: Q3 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Pharmaceuticals

BSE Code 506690

Face Value 2.00

52wk. High / Low (Rs.) 225.45/138.00

Volume (2wk. Avg. in Mn) 50000

Market Cap (Rs. in mn.) 19206.14

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 10052.17 10755.66 11401.00

EBITDA 1997.44 2219.12 2359.19

Net Profit 1295.96 1799.64 1455.00

EPS 14.33 19.86 16.06

P/E 14.80 10.67 13.20

Shareholding Pattern (%)

1 Year Comparative Graph

UNICHEM LABORATORIES LTD S&P BSE SENSEX

SYNOPSIS

Unichem Laboratories Ltd is engaged in

manufacturing formulations, active pharmaceutical

ingredients (APIs) and pharmaceuticals.

Net profit for the quarter includes exceptional items

stood at Rs. 741.80 million against Rs. 303.47

million in the corresponding quarter previous year

and Net profit excluding exceptional items stood at

Rs. 321.4 million in Q3 FY14.

Revenue for the quarter rose by 13.90% to Rs.

2649.10 million from Rs. 2325.79 million, when

compared with the prior year period.

Domestic Branded Formulations stood at Rs. 1664

million as against Rs.1525 million in Q3 FY13,

showing a growth of 9.1%.

International Formulation Business reflecting a

growth of 3.6%, stood at Rs. 611 million compared

to Rs. 590 million in Q3 FY13.

API business registered a robust growth of 80.6%,

stood at Rs. 354 million compared to Rs. 196 million

in Q3 FY13.

EBITDA margins for the quarter ended December

31, 2013 stood at 18.2%.

Unichem Laboratories declared Interim Dividend of

Rs. 4/- per equity share of Rs. 2/- each for the FY14.

Unichem Laboratories has received ANDA approval

from the USFDA for Amlodipine Besylate Tablets.

Net Sales and PAT of the company are expected to

grow at a CAGR of 12% and 21% over 2012 to

2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Unichem Laboratories Ltd. 212.00 19206.14 14.33 14.80 2.36 225.00

Aurobindo Pharma Ltd. 436.25 127096.50 21.66 20.14 4.32 150.00

Lupin Ltd. 928.00 415953.80 40.18 23.10 8.58 200.00

Torrent Pharmaceuticals Ltd. 507.85 85939.80 37.40 13.58 5.20 460.00

Recommendation & Analysis - ‘BUY’

Unichem’s standalone revenue from operations stood at Rs. 2649.1 million for the quarter ended December 31,

2013 against Rs. 2325.79 million in the corresponding quarter of the previous year, depicting a healthy growth of

13.9%. Revenue from Domestic Branded Formulations stood at Rs. 1664 million as against Rs.1525 million in Q3

FY13, showing a growth of 9.1%. Revenues from International Formulation Business reflecting a growth of 3.6%,

stood at Rs. 611 million compared to Rs. 590 million in the corresponding quarter of the previous year. During

the quarter, the Company’s API business registered a robust growth of 80.6% and it is increased to Rs. 354

million compared to Rs. 196 million in Q3 FY13.

The Company’s EBITDA margins for the quarter ended December 31, 2013 stood at 18.2% (as against on 17.3%

Y-o-Y & 18.6 % on Q-o-Q basis) due to lower notified prices on NLEM products, higher spending on R & D,

marketing expenses, power & fuel and international freight. During the quarter ended December 31, 2013, Profit

before tax for the stood at Rs. 898.71 million, which includes exceptional items (Gain/-Loss of Rs. 491.65 million)

and consequently the net profit for the quarter stood at Rs. 741.80 million against Rs. 303.47 million in the

corresponding quarter previous year. Net Profit margins stood at 28% as against 13% recorded during the

corresponding quarter of the previous year. Net profit excluding exceptional items (Gain/-Loss) stood at Rs.

321.4 million. Exceptional Items represents profits on sale of the Company’s manufacturing unit at Indore SEZ.

The EPS-Diluted for the current quarter excluding exceptional items (Gain/-Loss) stood at Rs. 3.54. For the

quarter ended Dec 31, 2013, the Debt/Equity Ratio is 0.03%.

We expect the company to post a CAGR of 12% and 21% in its top-line and bottom-line over 2012-2015E

respectively. Hence, we recommend ‘BUY’ for ‘Unichem Laboratories Ltd’ with a target price of Rs. 233.00

on the stock.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q3 FY14,

Unichem Laboratories, incorporated in 1962,

engaged in the manufacturing formulations,

pharmaceuticals and active pharmaceutical

ingredients (APIs) in India, reported its financial

results for the quarter ended 31st Dec, 2013.

Months Dec-13 Dec-12 % Change

Net Sales 2649.10 2325.79 13.90

PAT 741.80 303.47 144.44

EPS 8.19 3.36 144.05

EBITDA 513.93 450.01 14.20

The company’s net profit jumps to Rs. 741.80 million against Rs. 303.47 million in the corresponding quarter

ending of previous year, an increase of 144.44%. Revenue for the quarter rose by 13.90% to Rs. 2649.10 million

from Rs. 2325.79 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 8.19 a share during the quarter, registering 144.05% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 513.93 millions as against Rs. 450.01 millions in the

corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Value in Rs. Million

Q3 FY14 Q3 FY13

Cost of material Consumed 687.94 622.38

Depreciation and Amortization Expense

101.07 85.40

Employees Benefit Expenses 399.67 367.25

Purchases of Stock in Trade 352.77 243.68

Other Expenditure 857.73 721.18

Latest Updates

• Unichem Laboratories Ltd has declared Interim Dividend of Rs. 4/- (200%) per equity share of Rs. 2/- each

for the financial year 2013-14.

• The Company has allotted and issued 20,000 equity shares of Rs. 2/- each pursuant to exercise of the stock

options by the eligible employees under the Employee Stock Option Scheme 2008 of the Company.

• During the quarter the Company received the full proceeds from sale of Indore SEZ plant to Mylan

Laboratories Limited amounting to Rs. 1605 million.

• Unichem Laboratories has received ANDA approval from the USFDA for Amlodipine Besylate Tablets.

Amlodipine Besylate Tablets USP 2.5mg 5mg and 10mg are therapeutically equivalent to NORVASC® Tablets

2.5mg 5mg and 10mg from Pfizer Inc.

Brand Position

Four Unichem brands feature among the top 300 Indian pharmaceutical brands.

� Losar-H – Rs. 800 mn. (Rank 90th)

� Losar – Rs. 650 mn. (Rank 119th)

� Ampoxin – Rs. 570 mn. (Rank 152nd)

� Unienzyme – Rs. 500 mn. (Rank 193rd)

COMPANY PROFILE

Unichem Laboratories, incorporated in 1962, is engaged in manufacturing formulations, pharmaceuticals and

active pharmaceutical ingredients (APIs). Unichem Laboratories Limited is an international, integrated, specialty

pharmaceutical company. It manufactures and markets a large basket of pharmaceutical formulations as branded

generics as well as generics in India and several other markets across the world. In India, the company is a leader

in niche therapy areas of cardiology, neurology, orthopedics and anti-infectives. The company has strong skills in

product development, process chemistry and manufacturing of complex API as well as dosage forms.

The company’s manufacturing facilities have received approval from various international agencies namely UK

MHRA, MCC (South Africa), WHO (Geneva) and TGA (Australia). The manufacturing plants have also received ISO

9001:2000 and ISO 14001:2004 certifications for quality management.

International Accreditations

Backed by a highly capable and motivated team of nearly 4,592 people, Unichem is headquartered in Mumbai,

India, and has six drug manufacturing locations across the country. In keeping with its commitment to

benchmark quality standards, several of the company’s facilities have been accredited by reputed international

organizations such as the US FDA, ISO, UK MHRA (earlier MCA), MCC (South Africa), WHO (Geneva) and TGA

(Australia).

Research & Development – The Next Frontier

The company has taken several important strides in the critical area of pharmaceuticals Research &

Development (R&D). It has expanded its R&D facility in Mumbai to spearhead research in Novel Drug Delivery

Systems (NDDS) and chemically synthesize non-infringing routes for the manufacture of medical products

directed at regulated markets. Unichem has established a proprietary Pharma Technology Development Centre

in Goa to focus on the development of generic formulations comprising Immediate Release as well as NDDS and

ANDAs exclusively for the US market. The company has also established Biotech facility at Goa to invent, design,

develop and commercialize biotech and biosimilar products.

Manufacturing facilities

APIs

• Roha (Maharashtra) – Multi purpose plants, regulatory approvals - USFDA, EDQM, TGA and ISO 9001:2000

compliant

• Pithampur (MP) – Multi purpose plants, regulatory approvals – USFDA , EUGMP

Formulations

• Baddi (HP) – essentially catering to domestic market, regulatory approvals - MHRA, MCC, ANVISA and WHO

• Ghaziabad (UP) – for catering to regulated and developing regulated markets, regulatory approvals - USFDA,

ANVISA, MHRA, MCC and ISO 9001& 14000

• Goa – for catering both to regulated and developing regulated markets, regulatory approvals - USFDA, MHRA,

MCC, ANVISA, TGA and WHO

• Sikkim Plant – catering to domestic market (Production started in Q1, 2010-11)

• Ireland – Packaging facility in Baldoyle

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

FY12A FY13A FY14E FY15E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 180.64 180.91 181.19 181.19

Reserves and Surplus 7119.53 7948.61 9256.60 10711.60

1. Sub Total - Net worth 7300.17 8129.52 9437.79 10892.79

2. Share Application Money pending allotment 0.35 0.00 0.00 0.00

Non Current Liabilities

Deferred Tax Liabilities 384.74 389.74 409.23 425.60

Other Long term liabilities 234.88 252.58 262.68 273.19

Long Term Provisions 102.39 91.87 140.25 154.28

3. Sub Total - Non Current Liabilities 722.01 734.19 812.16 853.06

Current Liabilities

Short Term Borrowings 248.73 57.20 152.20 133.94

Trade Payables 1367.85 1590.86 1622.68 1671.36

Other Current Liabilities 292.30 298.67 313.60 323.01

Short Term Provisions 333.00 516.70 227.35 250.08

4. Sub Total - Current Liabilities 2241.88 2463.43 2315.83 2378.39

Total Liabilities (1+2+3+4) 10264.41 11327.14 12565.78 14124.23

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 3708.10 4147.03 4976.44 5474.08

Intangible assets 144.01 115.15 118.60 122.16

Capital Work in Progress 1113.42 1292.91 827.46 910.21

a) Sub Total - Fixed Assets 4965.53 5555.09 5922.50 6506.45

b) Non-current investments 916.19 1072.03 1212.41 1333.65

c) Long Term loans and advances 260.23 83.78 87.97 101.16

1. Sub Total - Non Current Assets 6141.95 6710.90 7222.88 7941.27

Current Assets

Current Investment 145.00 330.60 228.11 255.49

Inventories 1411.31 1316.34 1513.79 1705.63

Trade receivables 1848.25 2122.76 2483.63 2831.34

Cash and Bank Balances 138.61 166.60 203.25 239.84

Short-terms loans & advances 534.99 639.14 869.23 1101.30

Other current assets 44.30 40.80 44.88 49.37

2. Sub Total - Current Assets 4122.46 4616.24 5342.90 6182.96

Total Assets (1+2) 10264.41 11327.14 12565.78 14124.23

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 8031.87 10052.17 10755.66 11401.00

Other Income 93.95 140.67 223.22 250.00

Total Income 8125.82 10192.84 10978.88 11651.01

Expenditure -6757.60 -8195.40 -8759.76 -9291.82

Operating Profit 1368.22 1997.44 2219.12 2359.19

Interest -32.99 -24.81 -23.39 -24.56

Gross profit 1335.23 1972.63 2195.73 2334.63

Depreciation -282.88 -348.16 -430.89 -499.83

Exceptional Items 0.00 0.00 491.65 0.00

Profit Before Tax 1052.35 1624.47 2256.50 1834.80

Tax -228.10 -329.50 -456.86 -379.80

Profit After Tax 824.25 1294.97 1799.64 1455.00

Extraordinary Items 0.38 0.99 0.00 0.00

Net Profit 824.63 1295.96 1799.64 1455.00

Equity capital 180.64 180.91 181.19 181.19

Reserves 7119.53 7948.61 9256.60 10711.60

Face value 2.00 2.00 2.00 2.00

EPS 9.13 14.33 19.86 16.06

Quarterly Profit & Loss Statement for the period of 30th June, 2013 to 31st March, 2014E

Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E

Description 3m 3m 3m 3m

Net sales 2655.79 2695.71 2649.10 2755.06

Other income 76.10 77.04 32.90 37.18

Total Income 2731.89 2772.75 2682.00 2792.24

Expenditure -2147.21 -2193.59 -2168.07 -2250.89

Operating profit 584.68 579.16 513.93 541.35

Interest -6.17 -6.49 -5.80 -4.93

Gross profit 578.51 572.67 508.13 536.42

Depreciation -106.82 -109.80 -101.07 -113.20

Exceptional Items 0.00 0.00 491.65 0.00

Profit Before Tax 471.69 462.87 898.71 423.23

Tax -110.70 -100.80 -156.91 -88.45

Net Profit 360.99 362.07 741.80 334.77

Equity capital 180.94 181.17 181.19 181.19

Face value 2.00 2.00 2.00 2.00

EPS 3.99 4.00 8.19 3.70

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 9.13 14.33 19.86 16.06

EBITDA Margin (%) 17.03% 19.87% 20.63% 20.69%

PBT Margin (%) 13.10% 16.16% 20.98% 16.09%

PAT Margin (%) 10.26% 12.88% 16.73% 12.76%

P/E Ratio (x) 23.22 14.80 10.67 13.20

ROE (%) 11.29% 15.93% 19.07% 13.36%

ROCE (%) 21.87% 28.65% 27.63% 25.93%

Debt Equity Ratio 0.03 0.01 0.02 0.01

EV/EBITDA (x) 14.08 9.55 8.63 8.10

Book Value (Rs.) 80.83 89.87 104.18 120.24

P/BV 2.62 2.36 2.04 1.76

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.212.00, the stock P/E ratio is estimated 10.67 x FY14E and 13.20 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs. 19.86 and Rs.

16.06 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 21% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 8.63 x for FY14E and 8.10 x for FY15E.

� Price to Book Value of the stock is expected to be at 2.04 x and 1.76 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.233.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India’s pharmaceutical sector will touch US$ 45 billion by 2020. In the period 2002–2012, the country’s

healthcare sector grew three times in size, touching US$ 70 billion from US$ 23 billion. India's pharmaceutical

market experienced a similar boom, reaching US$ 18 billion in 2012 from US$6 billion in 2005.

The rise of pharmaceutical outsourcing and investments by multinational companies (MNCs), allied with the

country's growing economy, committed health insurance segment and improved healthcare facilities, is expected

to drive the market’s growth.

India is today one of the top emerging markets in the global pharmaceutical scene. The sector is highly

knowledge based and its steady growth is positively affecting the Indian economy. The organised nature of the

Indian pharmaceutical industry is attracting several companies that are finding it viable to increase their

operations in the country.

Market Dynamics

The domestic pharmaceutical market has reported total sales of Rs 6,883 crore (US$ 1.12 billion) in the month of

July 2013, a growth of 13.5 per cent, according to IMS Health. The major factors responsible for this growth are

increasing sales of generic medicines, continued growth in chronic therapies and greater penetration in rural

markets.

India currently exports drug intermediates, Active Pharmaceutical Ingredients (APIs), Finished Dosage

Formulations (FDFs), Bio-Pharmaceuticals, and Clinical Services across the globe. The exports of pharmaceuticals

from India grew to US$ 14.6 billion in 2012–13 from US$ 6.23 billion in 2006–07, registering a compound annual

growth rate (CAGR) of around 15.2 per cent. The Ministry of Commerce has set a target for Indian pharma sector

exports of US$ 25 billion by 2014 at an annual growth rate of 25 per cent.

Among the top pharma companies, Abbott with total sales of Rs 452 crore (US$ 73.67 million), Cipla with Rs 322

crore (US$ 52.48 million), Sun Pharma with Rs 313 crore (US$ 51.02 million), and Zydus Cadila with Rs 268 crore

(US$ 43.69 million) were the fastest growing companies in the month of September 2013. In terms of growth,

Sun Pharma (17.8 per cent) is ahead of peers such as Cadila (1.8 per cent), Cipla (0.8 per cent) and McLeod (0.7

per cent).

Investment Opportunities

The cumulative drugs and pharmaceuticals sector has attracted foreign direct investments (FDI) worth US$

11,391.03 million in the period April 2000–September 2013, according to Department of Industrial Policy and

Promotion (DIPP).

India, with almost 200 United States Food & Drug Administration (USFDA)-approved drug manufacturing

facilities, is the biggest foreign supplier of medicines to the United States (US). Exports to the US rose nearly 32

per cent last year to US$ 4.23 billion. India accounts for nearly 40 per cent of generic drugs and over-the-counter

products and 10 per cent of finished dosages used in the US.

The Department of Pharmaceuticals has projected an investment of Rs 3,000 crore (US$ 489.19 million) to set up

10 more National Institute of Pharmaceutical Education and Research (NIPER) over the next few years.

Some of the major investments in the Indian pharmaceutical sector include the following:

• GlaxoSmithKline Plc plans to invest Rs 864 crore (US$ 140.86 million) to set up a new factory in India.

The plant, which is expected to be operational by 2017, will include a warehouse, site infrastructure and

utilities to support the manufacturing and packing of the medicines.

• Cadila Pharmaceuticals Ltd (CPL) plans to invest Rs 100 crore (US$ 16.30 million) on expansion,

upgradation and modernisation of its manufacturing unit at Samba in Jammu district.

• HLL Biotech Limited (HBL), a subsidiary of HLL Lifecare Ltd, has entered into a long-term supply and

technology license agreement with the Institute of Immunology, Zagreb (IMZ), Croatia, for the

manufacture of measles vaccine in India. Under the partnership agreement, IMZ will transfer the

technology to manufacture bulk measles vaccine to HBL.

• Ranbaxy Laboratories Ltd has received an approval from the Central Drugs Standard Control

Organisation (CDSCO) to manufacture and market a new drug for the treatment of malaria in adults.

• Cipla has acquired a majority stake in Uganda-based Quality Chemical Industries Ltd (QCIL), with the

acquisition of an additional 14.5 per cent stake for US$ 15 million through its subsidiary, Meditab

Holdings Ltd (MHL).

• Dr Reddy's Laboratories Ltd has received approval from the USFDA for its Azacitidine injection. The drug

is used for treatment of some types of cancer and disorders that affect the bone marrow.

Government Initiatives

The Government of India has allowed 100 per cent FDI through automatic approval route in the new pharma

projects but the foreign investment in the existing pharma companies needs approval from Foreign Investment

Promotion Board (FIPB).

The Cabinet has approved Pharmaceuticals Purchase Policy (PPP) for 103 medicines to ensure optimum

utilisation of the installed capacity of the pharma central public sector enterprises (CPSEs) and availability of

quality medicines at low prices to the masses, besides ensuring drug security of the nation.

The Government of India has made tax breaks available to the pharma sector and a weighted tax deduction of

150 per cent for any R&D expenditure incurred. It has also introduced 19 dedicated special economic zones

(SEZ) to help stimulate pharma sector investment across the country.

The government has signed a bilateral agreement with the Republic of Hungary for promotion and development

of traditional systems of medicine.

Road Ahead

The small and medium enterprises (SMEs) are expected to play a significant role in the growth story of the

country's pharma sector as they contribute 35–40 per cent to the industry in terms of production with a turnover

of about Rs 35,000 crore (US$ 5.70 billion).

With the support of Pharmexcil and the Government in the form of Brand India Pharma project iPHEX, the sector

would continue to grow and meet the healthcare requirements of the developing world. The country will also see

the largest number of merger and acquisitions (M&A) in the pharmaceutical and healthcare sector, according to

consulting firm Grant Thornton.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of

any financial instrument or as an official confirmation of any transaction. The information contained herein is from

publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall not be in any way

responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained

in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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