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Unichem: Strong growth

Jun 20, 2002

A wider therapeutic reach, increasing presence in exports and restructuring benefits have helped Unichem Labs display robust numbers for FY02. The company's margins have shown steady improvement in the last two years due to product introductions in high growth segments. The company ended FY02 with a 55% growth in net profits.

(Rs m)FY01FY02% change
Sales2,190 2,689 22.7%
Other Income2725-7.0%
Expenditure1,854 2,233 20.5%
Operating Profit (EBDIT)33745635.3%
Operating Profit Margin (%)15.4%16.9%
Interest (net)5045-9.4%
Depreciation596610.3%
Profit before Tax25437045.4%
Tax2261.86185.1%
Extraordinary Item-340-
Profit after Tax/(Loss)19930855.0%
Net profit margin (%)9.1%11.5%
No. of Shares (eoy) (m)8.58.5
Diluted Earnings per share*23.436.2
P/E (at current price)6.8
*- annualised

The company has been launching products in the high margin segments in the last two years which has helped it enhance its overall profitability margins. The company introduced eight products last fiscal. The company has identified anti-diabetes as its core area of growth going forward. Some of the products introduced include Glitase a drug used to treat diabetes, TG-tor a cholesterol reducing drug, Roff-50 a painkiller, Erix Unichem's version of Pfizer's blockbuster drug Viagra and Nutreva a Protein supplement. It plans to introduce 10 products in the current year.

Last year the company launched two new divisions - Foreva (catering exclusively to women healthcare) and Molecular Generics, which cater to the generics market. The growth drivers were tranquilisers and anti-rheumatics, which registered growth of 18% and 73.4% respectively. While tranquilisers contribute 11.4% to the total turnover, anti-rheumatics contribute around 8.5%. Cardiovascular and CNS also registered healthy growth rates. The growth in the cardiovascular segment was driven by Corvadil-A (hypotensive combinations) and Loprin (anticoagulents). Serta (antidepressant), with a growth rate of 92.9%, was the key growth driver for the CNS category. Cardiovascular and CNS together contribute around 10% to the total turnover.

Unichem is foraying in the UK through a JV with the former directors of the Bioglan group in Ireland. The company will hold a 60% stake in the JV, christened Niche Generics, while the balance 40% will be held by the foreign management team. Niche Generics will buy certain assets of the Bioglan group including the manufacturing facility in Ireland, range of product licenses (market authorisations) representing a present business of approximately 4 m pounds spread across the regulated markets of the European Union and UK. Unichem has already invested 2 m pounds and will invest another 1 m pounds to fund Niche Generics' working capital requirements.

The stock currently trades at Rs 247 at a P/E of 7x FY02 earnings. The company is trading at a discount to its peers in the industry. No doubt that the company has ventured into some high growth areas, however, competition is stiff in these segments and the company will require considerable time and resources to establish its brands here.

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