I had invested in Unichem way back in 1998. Earned good returns with 2 bonuses and splits, upto 2010. Fortunately, exited in 2010 with these gains. After that, this stock hasn’t gone anywhere - keeps oscillating between 180-225. Although the management is good, they haven’t been able to deliver consistent growth, quarter on quarter. Perhaps nothing more than a good dividend yield.
Now its price increase even though mkt is down about 16% from high and this counter is gaining what is the reason behind the sin ?
sorry about talking about stock price performance. this has crossed 300 despite repeated bad results. trading at a pe of 44. ( may not be fair to value based on pe considering that earning depressed. but still). this really puzzles me.
Surprised that market did not react much to the news or does the stock price already discounted this? I’m not tracking Unichem, so I do not know what the market was expecting. Looking at the last few posts where members were surprised that the stock crossed 300 despite bad results etc. it may be that some insider trading or some people got the whiff of it!
I’m putting here as this should be seen by the ones who are already invested. Also, the valuation is at 1 billion USD while the current market cap is just half of it!
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you have to consider the debt also if any
Q3 results are out.
http://www.moneycontrol.com/stocks/reports/unichem-labs-results-press-release-2694361.html
CONFERENCE CALL - from Capital Markets
Unichem Laboratories
Overall the company expects good growth in Mar’16 quarter and is hopeful for a double digit growth in FY’17
The company held its conference call on 25th Jan’16 and was addressed by key management
Key Highlights
As per the management, lot of restructuring exercise and product adjustments were undertaken in both Chronic and Acute businesses in India, which is paying off in terms of the growth in the current markets. Domestic formulation business have grown by more than 19% in current Dec’15 quarter to Rs 189 crore and about 13% for 9 months ended Dec’15, growth of 13% YoY.
All the products of the company be it in chronic or in acute have grown higher than the industry. The legendary brands of the company which contribute around 46% of total sales have grown faster than the markets.
The EO expense represents the bonus being allotted to the employees of the past year of around Rs 3 crore.
The increase in employee costs for Dec’15 quarter is largely attributable by the changes in bonus act, which led to higher provisions for bonus for entire 9 months ended Dec’15 in Dec’15 quarter only.
Around Rs 100 crore has already been spent in Goa expansion and on API side in Maharashtra State. Management expects to end the year FY’16 with a total capex of around Rs 150 crore. For FY’17 also capex of around Rs 100 crore is planned for 2nd phase of Goa and further expansions on API segment in Maharashtra. Majority of the capex will be met from internal accruals.
The US subsidiary continues to report healthy numbers, with sales up by 39% for 9 months ended Dec’15 and PAT at US $ 0.8 M. However, UK, Brazil and the African subsidiary continued to report losses. Management expects the losses to continue in FY’17 as well. Introduction of new products and increase in the capacities will result in better than expected results. Management is trying hard to make these subsidiaries profitable, particularly the UK subsidiary which should turnaround faster.
The company has received approvals for 3 products in US market out of which 1 product is already launched and balance apporvals will come in subsequent quarters. New products to be launched will drive further growth in US subsidiary
Overall the company expects good growth in Mar’16 quarter and is hopeful for a double digit growth in FY’17
As on Dec’15, there are about 15 pending ANDA’s which were filed and the company is waiting for the regulatory approvals.
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Market Cap : 2900 Cr
Unichem announced sale of domestic business to Torrent at Rs.3600 Cr as a slump sale. After LTCG of 20% - (initial cost?) , the company should retain around Rs.3000 Cr+ cash .
Company will retain its international and API business which did sales of ~ 600 Cr and growing at a healthy rate
Expected Market Cap : 3000 * 0.9 + 2 * API Sales = ~Rs. 4000 Cr which is a good 40% return on current price.
Anyone has inputs on the API business please share so that we can ascertain correct value of that business
Disc: Invested at 320
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Part of the cash will be distributed as special dividend. Normally cash is not given much importance in valuations. If you closely observe the management interviews, their body language and future plans, you will notice significant difference between Unichem and others like Ajanta, Alembic. For some reason Unichem mgmt. looks content with modest gains and they lack the growth mindset. You can listen to their concalls. they keep telling same thing every qtr.
Disc : I don’t hold any of these 3 discussed in my post
Have they disclosed that they will be distributing any special dividend (big hefty dividend) ? you are assuming this or this is a confirmed news ?
Anyone has done calculations about what will be left will be profitable and what EPS going to be ?
Its a very tricky special situation. I think 60% of the business is gone and that was actually the most profit making business.
Same question… can pl anybody explain how to calculalte mcap in such special cases…as unicem mcap 2900cr and they are getting 3600 cr out of deal…
Whatshould be ideal mcap of unichem after this deal
thanks in advance
The U.S business contributes around 558 Cr to the revenue.
Except US all of the subsidiaries have -ve book value and are loss making.
The U.S business is making Rs 10Cr of profit and rest shown the loss of around 6Cr.
Suppose you get 50% return from the sale of India business as a shareholder ( thats what management is saying) , lets do back of the envelop calculation .
so you are basically investing at the Mcap of 2900/2 = 1450 Cr which will fetch you the profit of 6Cr . i,e you are still paying 241 times earning but the Cash in the balance sheet will be around 1500 Cr as well which management going to re invest in the U.S business.
Its very tricky , from his interview it looks like they are planning to go into Biosimilars and Complex Generics . which will take some time.
Its anybody guess how much profitable they can make U.S and Other international businesses.
I don’t see anything extraordinary here to make lots of money out of it.
If they would have shared 100% money back to shareholders then this looks attractive. with 50% money given back to shareholders and 50% of the money will invested on assets are yielding nothing doesn’t seems very lucrative to me.
But lets not forget they are doing sales of 558Cr out of U.S business. so, Even if they will be able to improve margins lets say 10% (which is too conservative from Pharma business perspective ) they will make 55.8Cr per year. Then you are paying 25 times Earnings , which is not bad considering cash of 1500 Cr still there in the balance sheet.
I mean you are buying company at Cash with PE 25 doesn’t look that bad.
But i still see there is no steal here … Might be a safe investment at current MCap.
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Thanks dhruvaji for beautifull explanation.now almost everything clear.
Regards
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Hi @Dhruva1705
Can you please elaborate on this? Basically what I understand is that as an existing shareholder the residual business should be cost free…IE factoring a 50% cash return to shareholder and reducing cash from any notional assigned value to the international business…
Regards
So my assumption is after deducting Capital gain tax etc from 3600 Cr , Shareholders will get 3000Cr .
Management will distribute 1500Cr to the shareholders via Dividends & buybacks , rest 1500Cr they will invest in the U.S business.
So buying today at Mcap cap of around 3000Cr (todays its 5% lower) what you will get ?
Cash of 1500Cr back to you. ( net you have invested 3k-1.5k = 1500 Cr)
and you will get an asset which yielded 6cr rupee in FY17 plus 1500Cr Cash in the balance sheet which will get invested into the business over time.
Basically what that means is you have invested 1500Cr in the business which did the sales of 583 Cr and profits of 6Cr.
I hope its clear now.
It would been cost free if they would have distributed 100% of money back to shareholders. Now 50% is still there in the residual business.
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Sure the cash returned to shareholders looks to be 1500 Cr + as per his interview.
But they are not investing the balance Rs.1500 Cr for generating sales of Rs.583 crore next year. They are planning to invest what is necessary out of that kitty for growth . Plus they have written in their interview that existing API facilities will get utilized for this business. I would value the company at higher than Rs.3000 Crores given all these facts. ‘’
Disc : Invested and maybe biased 
Yes, Rs 583 Cr was Fy17 revenue, Thats why i said value the remaining business with cash Rs 1500 Cr in the balance sheet.
I am not too excited about Rs 1500Cr investment into R&D, This is what their competitors are already doing from past many years …
In interview he talked about going up into value chain as other big pharma companies are already doing, by that he means going into Biosimilars and Complex generics.
Don’t think Rs15000 Cr will start fetching return immediately, Even if they will be able to make new drugs using it, There are lots of regulatory approvals which take their own time before you can get product into the markets.
I am having hard time evaluating value here, You have already made investment let me know your rationale ? Why you think value should be higher than 3000Cr ?
Hi @Dhruva1705
If I Buy Today i am essentially buying both the domestic+international business which is available at ~2900crs market cap. Now i have a buyer for the domestic business who is willing to pay me for the domestic business alone for ~3600 crs.
So as a shareholder:
A) I will be left with ~2900 crs cash arising from post tax gain from selling the domestic assets.
B) Now based on the managements intent as a shareholder i will be left with:
1500crs (domestic assets) +1500 crs cash to be utilised for int.business +notional value of int.business
Now we can work this anyway around and say that either i am getting international business free of cost or I have bought the combined business at 50% discount value up until international business generates market cap of 1500 crs…
I still feel that unichem has got a very sweetened deal from torrent considering that the domestic business is valued at 4x sales and whats left with unichem is its r&d and usfda approved plants which should have a high intangible value (but not being valued by the market)
Regards
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