Domestic branded formulations grew 28% YoY to | 142.2
crore on the back of a lower base (due to restructuring
exercise to bring down channel inventory). However, it
declined 7% QoQ due to lower offtake of anti-infectives.
As per the management, the growth was driven by
volumes. The company has also undertaken restructuring
in its product portfolio and initiatives to improve MRs
productively. It expects this segment to grow 200-300
bps higher than the industry growth rate in FY14.** The
company has not launched any new products in Q4FY13
but plans to launch 12 products in FY14.** The Losartan
(CVS) 30 mg and 50 mg tablets are in the list of National
List of Essential Medicine (NLEM). These two brands
contribute around 8% of total sales. Around 20% of total
current domestic formulations sales are likely to come
under the DPCO list if the government implements the
new pharma policy
Export formulations grew ~29% YoY to 69.9 crore on
the back of higher growth in the CRAMS business.
Currently, CRAMS is contributing 50% of total export
formulations.** Unichem is planning to launch one drug in
the US market in Q1FY14**, which would take the total
launches to 10. It has not filed any ANDA during the
quarter due to shift of R&D centre from Mumbai to Goa. The company is planning to file seven or eight ANDAs in
FY14. **In the Brazilian market, the company is planning to
launch two drugs on a commercial basis in FY14
**
The APIs business grew 18% to 29.2 crore on the back
of 29% growth in exports API ( 24.6 crore). However,
there was de-growth of 19% in the domestic API business
(4.6 crore). The company is currently facing capacity
constraints in the API business due to incremental export
volumes. It is planning to expand API facilities at both
Pithampur and Roha
Management has guided 20% growth in exports. Rupee weakening can add to profits. However ICICIdirect has assumed lowere growth (12-15%). They have also taken a conservative estimate of margins.
how are torrent valuations cheaper than unichem? Also, at unichem there is prospect of PE expansion (when strategies fall into place, so from not so great company at the moment to promising company) along with growth, due to their realignment activities falling in place, foreign subsidiaries showing traction and more products being introduced in foreign markets.
I am not tracking Torrent so not sure about that but from what I see, unichem is trading at approx 11 and torrent at 15, hence my question how is torrent cheaper than unichem?
It looks weak on chart. What is your technical view? Should one continue to accumulate in this weakness?
Rgds
Bharat
Hitesh bhai,
Are you able to visualize any impact of the forced price reduction by the indian govt. on unichem? I think the next quarter results will be vital for this stock…if the subsidiaries start posting profits we are in for a great ride…
Both unichem and canfin seem to be great bets for a 18-26 months outlook…please provide your valuable feedback…
Now let us see how it looks on Point and Figure charts. The stock has given a sell signal and broken a quintuplet support at 170 and an extended double bottom at 165. The stock is currently just below its Bullish Support Line too. On its downward journey it has support at 155, 140 and then 132.
On the upside it has to touch 180 and only then it will reverse into X column. It will then meet resistance at 190. If it crosses this level then one can expect 210. With the markets turning weak I see more of a downward bias. Let us see what Market has to say.
1). Company has shown the expected turnaround in fy 13 with cons sales increasing from 875 crores to 1080 crores. Net profits have grown from 71 to 113 crores. This gives cons eps of 12.5 per share up from 7.9 in fy 12.
2). Most of the capex and distribution rejig that had begun in early fy 12 has been completed and is likely to bear fruits going forward.
3). Company has a rock solid balance sheet with nil net debt. With money coming in from sale of MP SEZ, it will be cash surplus.
4). Company has high dividend payout ratio of close to 35-40% and it can afford to pay out high dividend bcos it is likely to generate a good amount of free cash going forward.
5). The export business is firing on all cylinders and the domestic business which till now was floundering is also now picking up as per latest quarter details. management also sounds upbeat in their latest concall.
6). Promoter has been buying from the markets since last few quarters. He has bought close to 45 lac shares from markets since jan 13.
Negatives:
1). subsidiaries are bleeding. management in their concall seem to indicate that this may stop by fy 14.
2). the drug pricing order will continue to remain an overhang over the sector in particular and stock overall. Some of their brands like losar group could be affected by this but combinations of losar with other molecules will not be affected.
3). It has not been able to show the scorching growth shown by other companies like ajanta and other leaders like lupin and sun pharma. How it fares going forward needs to be seen.
Overall, risk reward from these levels of 160-165 seem favorable to me…
It remains one of my top holdings and hence consider my views biased.
Pl do your own diligence and decide whether to buy sell or hold.
Thanks for the detailed input Hitesh. There are two high probability things which is likely to happen in FY14.
1). The subsidiaries stop bleeding.
2). Revenue grows 12% which may drive the profit by 15%.(Management in their conference call said that they will grow 2-3% higher than the industry growth).
Only the above can grow the EPS to Rs. 18 and at 15 PE the price can touch 270 which is cool 60%+ upside from here. Also the dividend could increase further to Rs. 6 is not ruled out if the EPS comes out like this.
heard this morning on cnbc tv 18 that the CCI had approved the unichem-mylan deal. That should clear the way to the company getting close to Rs 150 crores which could be utilised to augment the Goa facility which is already USFDA approved.
I think there will be some fireworks in stock once the announcement with details is put up on bse or nse.
Pardon me, if I’ve missed it somewhere discussed earlier:
But has the co given any reason why they built a new plant & selling it even before it’s operational. Even though, yeah, in this case they are selling it for higher than what they spent on it, so it’s positive for co - but still. I mean any business rationale given for sale?
they have given the justification for the decision and u can go back in the unichem thread and read it. I recall having put up the rationale given by the management.
Finally got around to studying Unichem - it helps that the stock has hardly moved, despite well-articulated positives. So Yes, there are some hangovers on the stock - unimpressive management of subsidiaries, and the DPCO effect (both not very significant dampners as results have repeatedly demonstrated).
But on current levels - It looks like a NO-BRAINER!
Let me devote some energies now to focus on the Negatives in coming posts, to really establish above.
Also let’s move quickly on arranging a Management Q&A.
Disc: Bought initial quantities. Looking to add more as conviction builds. This thread and Hitesh’s conviction may have biased me truly. Please do own due diligence
1). Unichem Turnaround story is probably now over with NP almost reaching back to 2010 highs.
Mr Market certainly does not seem to think the growth story has started in earnest. When do you think the growth story starts. Is that FY14 or is that FY15 onwards?
2). 2010 NP of 133 Cr was achieved on much lower sales of 690 Cr with a 26% margin. If we look closely at earlier years Unichem 2007 -2010, incremental Sales were poor hardly 5-10%, but huge jumps in Operating Margins - from 18% to 23% to 26%
Any clues to what accounted for those big jumps? Any idea if those margin highs can be re-captured? Why or why not?
3). One thing I don’t like about Unichem is the very low ratio of Retained Earnings/Assets over the years at 6% currently and never above 16%. Similarly very low EBIT/Assets at 13%.
This will surely improve from here but pales in comparison to the best in the business - Retained Earnings at 30% consistently and EBIT/Assets consistently at 60% plus for say companies like Mayur or Page Industries. (before I hear objections, sorry I like to compare with the best first to slot the company somewhere in my first look). Capital Turnover has been consistently coming down every year for the last 7 years!
So the great BS and Surplus Cash is not being put to very good use. Average marks for now on Business Quality
Hitesh and Others who know the business well - please comment and educate.
Skeptics like AnilKumar - can you get to work on finding more objections? This will help us prepare for the Management Q&A well.
It dates way back to 1999.I like reading such interviews since they give good insight about the management,what they have achieved,etc.The importance increases if the managemnet has stayed the same over the years.I find it very interesting.Interviews of Vidush Somany,Ajanta management,Mr.Galla are also availaible(all 7-8 years old,atleast)
to slot the company somewhere in my first look). Capital Turnover has been consistently coming down every year for the last 7 years!