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Few weeks back Hitesh mentioned this stock to me and I have been looking at it since then. I have read this thread a couple of times and gone through the AR for the last 5 years, listened to the management concalls. All this because this is my first investment in the pharma sector!!!
I have done a very basic analysis using Dupont (which I rather like).
**NPM **
)- the last few quarters, it has been between 18-20%. I am taking it at a conservative rate of 17%.
Asset Turnover
)- Again, last few quarters, it has been between 1.2-1.3. It is likely to improve further as production from the new capacities kick in. But, I am considering 1.3 here.
Financial Leverage
)- Unichem is a debt free company, so this has been close to 1.05. I am taking it as 1.
With these numbers, RoE (FY14) comes to about 22%. Assuming a networth of 750cr in Fy13 and 800cr in FY14, I am expecting a Net Profit of 130cr FY13 and 175-180cr in FY14. EPS for FY14 could tend to around 19-19.5.
PE of 15 (current), we can expect a price of around 290-300.
PE of 20 (optimistically) can take the price up around the 400 mark.
As per the last conf call, details of the new pricing policy will be effective around Juneā13 ? Do we know the impact , especially since unichem derives significant revenue from domestic business.
I just read a buy reco on unichem in our gujarati newspaper --gujarat samachar-- it is gujaratās number one gujarati newspaper and usually comes out with fundamentally good companies analysed in detail.
Basic theme of investment remains what we here consider as important:
Good promoters
Successful turnaround which will be followed by growth
Great bonus history (and splits-they have even mentioned possibility of it going for a split to end up being a Re 1 face value share)
Good dividend history
Some recent events and triggers like
)- promoter buying of aroud 4.4 lac shares since jan 13 at avg price of 190
)- sale of sez land and realisation of Rs 160 crores
)- Projected eps of 15 plus for fy 13 and 20 plus for fy 14
They apply PE of around 18 for targets of 365 based on fy 14 projections.
Personally I agree with most of their investment arguments.
Hitesh,
When you have to compare Unichem and Ajanta which one has maximum potential in next 2 years. From your portfolio I could sense you are more bullish on Unichem, but if you could explain a bit that would be great.
Regards,
Raj
raj, I dont know which of the two companies is going to provide better returns but personally I am more bullish on unichem if one compares the current market price and probable returns.
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At cmp of 660, ajanta is quoting at around 13 times fy 13 eps of 50 (there is a possibility of upside revisions if ajanta continues the growth trajectory)
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Unichem is quoting at same PE of around 12-13 times expect eps of 14 for fy 13.
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I prefer unichem because
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1). Unichem is going to generate free cash flow more as compared to ajanta. It is at the fag end of expansions whereas ajanta is on verge of a major expansion.
2). Cash surplus balance sheet
3). Better US markets presence in case of Unichem.
4). Because of static or low growth in past, Unichem will be operating on a lower base and comparable growth could be great. (In case of ajanta due to spectacular growth, I dont know how far this 40-50% growth is sustainable)
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Having said that, both Unichem and Ajanta occupy equal weightage currently in my portfolio and I would be happy if both keep running up.
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**Ajanta has surprised in terms of returns if one were to consider the price appreciation within 2.5 years ā It has gone up 6-7 times from levels of 180-200 (pre split). **
Thanks a lot Hitesh for your detailed input. Looks like more people are realizing the potential now. Stock today has shown big move.
I think the upmove today is due to impact of the stock reco in gujarat samachar which is gujaratās most widely read newspaper. And I guess there are a lot of stock investors in gujarat.
Thanks Hitesh, i always had this doubt in my mind, if sites like valuepickr/TED have a wide enough following to move the individual stocks to such extent. No doubt, Gujarat and Gujaratiās form a disproportionate bulk of Indian individual investors. Best part is, Gujaratiās have the support for equity investing from the female section too, so no jhik jhik with the better half on this count. Found the gujarati samachar website, unfortunately chrome doesnāt translate it into English 
Hi Hiteshbhai,
one which day did Gujarat Samachar come up with this recommendation ?
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amey,
look up sunday ā yesterdayās edition of guj samachar.
hitesh.
Important points from the article and questions in my mind
āAccording to the policy, the prices of 348 essential drug formulations (or 640 packs of medicines containing these drugs in various strengths and dosages) will be fixed at the arithmetic average of prices of all the drugs in that segment with a minimum of one per cent market share.ā- How do we know which companies will be affected by this ? and will it make a material impact on the prices of these drugs ? Looks like, it will impact the company which have higher prices more than the company which have less price.
āOnce a drug reaches the distribution and retail level, withdrawing it becomes a complicated process. Besides, all the relabelling, etc, has to be done by the manufacturing company. So, 15 days is not feasible,ā said a pharma company official." -The objection to the policy is also very feeble, in fact itās not a objection at all, just formality about when the implementation will be done. The ground of objection was much clearer in the interview of Swati Piramal , the earlier article which i had shared in some thread.
After reading hitesh bhaiās reco I have been tracking this stock since the last 6 months and it is almost at the same price where it was 6 months backā¦this stock has all the characteristics-great bs,zero debt,SEZ land sale and decent quarterly performancesā¦So it makes more sense for the stock price to react sooner than laterā¦i feel that the annual results has a big possibility of being a triggerā¦
To add we have seen how the market has rewarded the companies where owner/promoter has bought back sharesā¦I really have a great feel about this scriptā¦
I think exactly the same.I remember Hitesh has done some talking to MRs and sales people and expecting better topline. So just a trigger needed, it will see 25-30 % moves quickly.
not able to attach report, so reproducing the text below. Report by Anand Rathi dated 12th March.
Unichem Laboratories
Good times ahead; Hold
Key takeaways from management meet
Recovery in domestic formulations to sustain. After disappointing for six
quarters continuously, the companyĆ¢s domestic business reported above
industry growth since 1QFY13 - up 16.8% yoy in 9MFY13 vs ~13% for
industry. Management expects recovery in this segment to sustain and the
company to garner above-industry growth over the next two years. Growth
will be led by internal restructuring of field force, higher focus on brand (less
than `100m revenue per product) and growing acute segment.
Formulations unit at Indore SEZ on sale. The company recently
announced an agreement with Mylan to sell its formulations unit at Indore
SEZ for `1.6bn and the deal is expected to close by 1QFY14. Further, the
company has bought an adjacent land at existing Goa plant, which is already
approved by USFDA. It intends to built additional capacity there to
compensate for the Indore capacity.
Exports formulations likely to grow rapidly. Exports formulations (24%
of total revenue) could grow at 20%+, mainly driven by US business and start
of supplies to Brazil. The company has total 27 ANDA filings, including 15
already approved (9 launched till date). In Brazil, the company has made 16
filings, of which, 5 have already been approved.
Our take. We expect recovery in domestic formulations to continue as
inventory rationalization is already over, and estimate 13% revenue CAGR in
FY12-15. Export formulations would remain a key growth driver with 24.5%
revenue CAGR. The consideration received from sale of Indore SEZ unit
would provide opportunity to accelerate growth in domestic business through
inorganic route. We expect 450bps improvement in consolidated EBITDA
margin in FY12-15 to 18%, led by recovery in domestic formulations. At
CMP of `187, the stock is trading at 15.3x FY13e and 12.3x FY14e earnings.
We maintain a Hold with a target price of `212. Risks. New pricing policy in
India and delay in turnaround of Niche Generics (subsidiary).
The above report assumes FY 13 earnings as Rs 12.2. The company has already achieved Rs 10.9 in the first three qtrs. Rs 1.3 in the 4th quarter seems rather low. The earnings should be closer to Rs 14 in FY 13.
Basically these are desk jobs where the earlier reports are just modified in terms of dates and updates on quarterly results. I think the analyst doesnt even bother to change the estimates based on 9M results for the year.
I have heard some concalls where the analyst seem to be sleeping, often asking questions asked by someone earlier.