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Thursday, October 29, 2009

Unichem Laboratories Ltd:Future growth prospects and outlook

Scripscan:Unichem Laboratories Ltd

Story:The company's biggest business the domestic formulations business is in a restructuring mode since the last six months and is expected to continue for another quarter. The new head of formulations business has been liquidating stocks. The company is in the process of de -risking its domestic formulations business which comprise around 67 % of the company's revenues. CVS accounts for 43 % of its revenues and is by far the most profitable segment of the company's business. The company is in the process of focusing on brand building. Unichem is in the processwhereby it would not allow any therapeutic segment to have more than 25 % of its revenues. The company is achieving this by filling in the gaps in segments where it has presence but does not cover the entire spectrum of products. A classic case is Ampoxin which dominates their Anti-infective basket. On account of restructuring of its business taking longer time we downgrade our domestic formulations growth to 11 %as against 13 % previously.The company's export formulations business will grow solely on back of US business which would be the fulcrum of growth. Unichem hasalready received approval of 5 ANDAs and the latest being Bisoprolol which is a USD 50 mn product in US markets. We have factored USD 5 mn revenues in the current year and USD 12 mn in FY 11E. The rest of the formulations business is under pressure on account of contract manufacturing. The API business is also under pressure on account of the slowdown in the Europe and US. On account of lower traction indomestic formulations business we downgrade our FY 10E EPS estimates by 6.5 % to Rs 31.7 and we introduce our FY 11E EPS at Rs 42.8. The EPS growth of 36 % is mainly driven by strong growth in domestic formulations business and scale up in US business coupled with better performance of subsidiaries. Currently the stock is quoting at 5.9x FY 2011E. We roll over our price target to FY 11E with a price target of Rs 300 based on 7x FY 2011E. We maintain BUY rating on the stock.

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