>UNICHEM LAB: Result update Q1FY11

Unichem’s (ULL) Q1FY11 results were in line with our expectations. Sales grew 11% YoY to Rs 186 crore (we expected Rs 197 crore) due to ~11% YoY growth in the domestic business and ~12% YoY growth in exports. In the domestic business, the top 3 brands viz. Ampoxin, Losar
H and Losar continued to stage a robust performance. ULL reported 3% YoY net profit growth in Q1FY11 to Rs 33.4 crore (we expected Rs 33.5 crore) on a standalone basis. EBITDA margin decreased 119 bps YoY from 27.1% in Q1FY10 to 25.9% in Q1FY11 but QoQ it improved marginally by ~7 bps. Although export formulations de-grew ~2% YoY, overall exports grew ~12% YoY on account of ~46% YoY increase in exports API. Niche Generics (100% UK subsidiary) clocked sales of £2.24 million, contributing ~7% to the overall topline. We maintain our target price of Rs 486 on the stock with an ADD rating.

■ Highlights for the quarter
During the quarter, domestic formulations grew at a lower rate of ~11% YoY to Rs 147 crore. The Losar group (market leader) clocked sales in excess of Rs 30 crore with 32% market share. The nearest competitor has 12% market share. However, the Ampoxin brand witnessed subdued growth during the quarter. Higher API sales led exports revenues to improve by ~12% YoY. The debt-equity ratio increased from 0.03 in Q1FY10 to 0.04 in Q1FY11.

Valuation
ULL is poised to grow at 17% CAGR (on a consolidated base) over FY10E- 12E to ~Rs 1044 crore. We believe ULL is at an inflection point and will likely witness robust growth numbers, going forward. The stock is currently trading at 9.1x FY12E EPS of ~Rs 50. We estimate the fair value of ULL at Rs 486 on an SoTP basis and assign an ADD rating on the stock, implying ~7% upside from current levels.

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