A report by Avendus Securities (AS) on Unichem Laboratories (UL) stated that at nine per cent y-o-y , the company’s domestic formulations growth during the December 12 quarter was disappointing. While the momentum was expected to ease during 2H, following the robust 1HFY13 (up c21 per cent) the sluggishness in the broader market dampened growth further.
As report further states that UL’s performance in the domestic segment is the lever for earnings and valuation. As the company settles into normalcy and reaps benefits from quarters of restructuring initiatives, a steady earning momentum is expected. The introduction of the new pricing policy is the single largest risk to earnings and valuations.
After quarters of restructuring initiatives in its domestic formulations segment, UL is clawing its way back into a positive territory of growth. The first signs of a return to normalcy were visible in the June 2012 quarter. As the initiatives fructified, coupled with the support rendered by a weak base, the domestic business grew c21 per cent y-o-y in 1HFY13.
However, while the momentum of 1H was expected to smooth out during 2H, the nine per cent y-o-y during the December 2012 quarter was a tad below expectations. The sluggishness in the broader market took a toll on UL’s performance.
According to AS, barring the impact of the pricing policy, a CAGR of c13 per cent in the domestic formulations revenues during FY13f–FY15f is expected. AS maintains that the domestic segment’s performance would remain the lever for earnings and valuation. The segment earns an above-company-level EBITDA margin and contributes over 60 per cent to the revenues. A period of weak performance in the segment, thus, has a direct bearing on profitability.
As UL settles into normalcy and benefits from its restructuring initiatives, AS expects a steady earning momentum. The company’s focus over the medium term is likely to revolve around its efforts to regain lost market share in its key brands. PAT forecasts has been lowered by up to one per cent and factor in a CAGR of 11 per cent/30 per cent in revenues/PAT during FY13f–FY15f.
EP News Bureau – Mumbai