>MERCK: Oxynex plant modified

Merck has reported disappointing results for Q4CY11 due to sharp decline in pharma business. The company’s pharma business declined by 16%YoY whereas the chemical business grew by 40%YoY. During the quarter, the company’s revenues declined by 1%YoY, EBIDTA margin by 1100bps and net profit by 118%YoY. The company’s flagship brands Evion and Nasdivion grew by 24% and 25% respectively during the year. These are likely to contribute significantly from CY12 onwards. We reiterate Buy rating on the scrip with a revised target price of Rs705 (based on 14x CY13 EPS).


■ Pharma business disappoints: During the quarter, Merck reported 1%YoY decline in total revenues from Rs1.29bn to Rs1.27bn. Its pharma business declined by 16%YoY
from Rs958mn to Rs809mn. The company’s chemical business grew by 40%YoY from
Rs359mn to Rs503mn.


■ EBIDTA margin declines sharply: Merck’s EBIDTA margin declined sharply by 1100bps YoY from 7.6% to -3.4% due to sharp rise in the material cost and personnel expenses. Material cost went up by 660bps from 41.3% to 47.9% of total revenues due to the rise in cost of imported raw materials and lower sales of pharma products. Personnel expenses went up by 390bps from 12.6% to 16.5% due to rise in salary and annual increments. Other expenses grew by 50bps from 38.5% to 39.0% due to slow sales growth. Merck’s other income grew by 73%YoY from Rs71mn to Rs123mn. The company’s net profit before EO items declined from Rs89mn to Rs-16mn. Net profit after EO items grew by 177%YoY from Rs46mn to Rs127mn.

■ Growing slower than the market: As per IMS MAT-Dec’11, Merck grew at 10.5% against the industry growth of 14.9%. The slower growth is attributed to lower growth of its two major brands, Neurobion (gr. Rate 7.7%) and Polybion SF (gr. Rate -2.6%). 􀂁 Nasivion- future growth driver: Merck achieved good growth for its brands Evion and Nasivion. As per IMS MAT-Dec’11, Evion grew by 23.8% whereas Nasivion grew by 25.0%. Evion is the market leader in vitamin E segment and is expected to maintain the high growth rate. Nasivion is outside the price control and an OTC brand. Merck is advertising this product on TV to gain market share.


■ Oxynex plant modified: During CY11, the company modified Oxynex plant assets and commenced the manufacture of alternate products. The company has reversed the provision of Rs143mn impairment charges on account of revised estimated value of its use.


■ Reiterate Buy: We have revised downwards our CY12 EPS estimates by 29% and CY13 estimates by 30%. We expect the company to benefit from the strong growth in vitamin E segment and OTC products. At the CMP of Rs620, the stock trades at 14.9x CY12E EPS of Rs41.6 and 12.3x CY13E EPS of Rs50.4. We reiterate Buy with a revised target price of Rs705 (based on 14x CY13E EPS).

RISH TRADER