Result Update

May 13, 2010

Rating matrix
Rating : Strong Buy Unichem Lab (UNILAB)
Target : Rs 486
Target Period : 12-15 months Rs 398
Potential Upside : 22%
WHAT’S CHANGED…
Key Financials (Rs Cr) PRICE TARGET .............................................................................. Unchanged at Rs 486
FY09 FY10E FY11E FY12E EPS (FY11E) ............................................................... Changed from Rs 39.3 to Rs 42.1
Net Sales 735.2 765.5 905.7 1057.8 EPS (FY12E) ............................................................... Changed from Rs 47.6 to Rs 51.1
EBITDA 142.2 181.4 212.3 253.0 RATING.......................................................................................................... Unchanged
Net Profit 108.2 132.9 151.8 184.2

Valuation summary Riding strong on base business…

FY09 FY10E FY11E FY12E
Unichem’s (ULL) Q4FY10 results were in line with our expectations.
EPS (Rs) 30.0 36.9 42.1 51.1 Sales grew 18% YoY to Rs 172 crore (we expected Rs 165 crore) due to
PE (x) 13.3 10.8 9.5 7.8 26% YoY growth in the domestic formulation business. ULL reported
20% YoY net profit growth in Q4FY10 to Rs 33 crore (we expected Rs 28
Target PE (x) 16.2 13.2 11.5 9.5
crore) on a standalone basis. EBITDA margins improved 291 bps YoY
EV to EBITDA (x) 10.1 7.7 6.2 4.9 from 21.3% in Q4FY09 to 24.2% in Q4FY10. Exports de-grew ~9% YoY
Price to book (x) 3.0 2.5 2.1 1.8 due to 27% YoY decline in API exports. As per our expectations, Niche
RoNW (%) 22.3 23.3 22.4 23.0 Generics (100% UK subsidiary) turned around in Q4FY10. On a
consolidated basis, revenues improved by ~4% YoY to ~Rs 766 crore
RoCE (%) 23.2 25.7 26.1 26.9
with Niche Generics contributing ~10% to the overall topline. With the
Stock data domestic business continuing to post a robust performance in the
Market Capitalisation Rs 1436.1 crore
coming years and Niche Generics turning EPS accretive, we are
maintaining our STRONG BUY rating with a target price of Rs 486.
Debt (FY09) Rs 39.7 crore
Cash (FY09) Rs 34.4 crore
ƒ Highlights for the quarter
EV Rs 1441.4 crore During the quarter, domestic formulations grew strongly by 26% YoY to
Rs 131 crore, outperforming the industry growth rate of 17%. The Losar
52 week H/L 453/163
group grew 19% YoY to Rs 34 crore and crossed Rs 100 crore in sales
Equity capital Rs 18.0 crore during FY10. However, the Ampoxin brand witnessed subdued growth
Face value Rs 5.0 during the quarter. Lower API sales dragged exports revenues by 9%
MF Holding (%) 9.7 YoY. Revenues from Niche Generics declined 12% YoY to £2.82 million.
The debt-equity ratio declined from 0.05 in Q4FY09 to 0.03 in Q4FY10.
FII Holding (%) 2.6
Price movement (Stock vs. Nifty) Valuation
6300 600
ULL is poised to grow at 18% CAGR (on a consolidated base) over FY10E-
12E to ~Rs 1058 crore. We believe ULL is at an inflection point and will
likely witness robust growth numbers, going forward. The stock is
4800 450
currently trading at 7.8x FY12E EPS of Rs 51. We estimate the fair value of
ULL at Rs 486 on an SoTP basis. We continue to rate the stock as
STRONG BUY with a target price of Rs 486, 9.5x FY12E earnings,
3300 300 implying ~22% upside from current levels.
Exhibit 1: Performance Highlights (Rs Crore)
1800 150 Q4FY10A Q4FY10E Q4FY09 Q3FY10 YoY Gr.(%) QoQ Gr.(%)
Nov-09
Oct-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09

Dec-09
Jan-10
Feb-10
Mar-10
Apr-10

Net Sales 171.58 165.2 144.9 172.8 18.4 -0.7

EBITDA 41.52 38.2 30.9 45.9 34.6 -9.6
NIFTY(LHS) Unichem (RHS) EBITDA Margin (%) 24.2 23.1 21.3 26.6 291 bps (238) bps
Depreciation 5.56 5.4 6.1 5.4 -8.6 3.5
Analyst’s name
Interest 0.07 0.1 -0.5 0.1 -114.9 -22.2
Raghvendra Kumar
kumar.raghvendra@icicisecurities.com Reported PAT 33.88 27.7 28.2 33.7 20.1 0.5
Ashish Thavkar EPS (Rs) 9.4 7.7 7.8 9.3
ashish.thavkar@icicisecurities.com Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Unichem Lab (UNILAB)

ƒ Sales growth of 18% YoY driven by domestic business

ULL’s standalone revenues grew ~18% YoY to Rs 172 crore on account
of a robust performance in the domestic market. Strong growth in the
cardiovascular, pharma and cardio-diabetes divisions led the formulation
sales to improve by 26% YoY to Rs 131 crore contributing 77% to the
standalone sales. The company’s flagship brand Losar grew 19% YoY to
Rs 34 crore during Q4FY10. The Top 10 brands contributed 73% to the
domestic formulation revenues in Q4FY10. The exports business declined
by 9% YoY on account of 27% YoY decline in API sales.

During FY10, the domestic formulation business grew 9% to Rs 536 crore.

Top 10 brands contributed ~72% to the domestic sales. The Losar group
posted strong growth of 17% to Rs 134 crore and became the largest
domestic brand in the anti-hypertensive category. Exports declined ~11%
YoY on account of a 27% YoY decline in API sales and flat formulation
business.

Going ahead, we expect consolidated sales to grow at 18% CAGR over

FY10-12E to Rs 1058 crore on account of 15% CAGR in the domestic
business, 32% CAGR in the base business of exports and 15% growth in
its European subsidiary Niche Generics. We expect Niche Generics to
contribute Rs 1.3 and Rs 2.3 to EPS in FY11E and FY12E, respectively.

Exhibit 2: Revenue break-up (Rs Crore)

STANDALONE Q4FY10 Q4FY09 YoY Gr (%) FY10 FY09 YoY Gr (%)
Domestic 139.2 109.2 27.5 557.6 507.4 9.9
Formulations 131.4 104.2 26.1 535.6 490.4 9.2
API 7.8 5.0 56.5 22.0 17.0 29.6

Exports 32.3 35.7 -9.4 126.2 141.5 -10.8

Formulations 20.4 19.3 5.7 83.6 83.1 0.6
API 11.9 16.4 -27.2 42.6 58.4 -27.0

Net Sales 171.6 144.9 18.4 683.8 648.9 5.4

Source: Company, ICICIdirect.com Research

Exhibit 3: Brand-wise sales

Sales Sales
(Rs Crore) Market Share (%) YoY Gr. (%) (Rs Crore) Market Share (%) YoY Gr. (%)
Losar 134.0 30.4 16.7 34.0 30.4 19.2
Ampoxin 85.0 43.9 15.9 18.0 43.0 -2.2
Trika 35.0 24 20.8 9.0 24.8 16.5
Unienzyme 26.0 10.2 32.9 7.0 11.4 39.5
TG-TOR 25.0 8.5 50.5 7.0 4.0 24.4
Telsar 25.0 3.8 14.9 7.0 8.1 56.9
Vizylac 16.0 33.9 28.9 4.0 34.3 22.1
Metride 15.0 3.2 37.8 4.0 3.0 42.3
Corvadil 12.0 2.3 2.5 3.0 2.1 1.6
Clodrel 12.0 5.5 8 3.0 5.2 12.3
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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Unichem Lab (UNILAB)

ƒ EBITDA margin improves by 291 basis points

ULL reported an expansion in the EBITDA margin in Q4FY10 by 291 bps

YoY due to a decline in the raw material and staff cost as a percentage of
sales. EBITDA margin improvement was also aided by the higher
contribution from the domestic formulation business to the tune of
~77%.

Going ahead, a steady performance in the domestic business and

improvement in Niche Generics performance would likely aid the
consolidated operating profit to grow at FY10-12E CAGR of ~18%
clocking an EBITDA margin of 23.9% in FY12E.

Exhibit 4: EBITDA margin trend

200 26.8% 26.5% 26.6% 30%

180
160 25%
24.2%
140 21.1% 20%
120
100 15%
80 169.3 174.7 172.8 171.6
146.4 10%
60 45.4 46.3 45.9 41.5
30.8
40 5%
20
0 0%
Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10

Standalone sales, LHS (Rs Cr) EBITDA, LHS (Rs Cr) EBITDA margin, RHS

Source: Company, ICICIdirect.com Research

ƒ Adjusted net profit improves ~20% YoY

The net profit for Q4FY10 was 20% higher YoY at Rs 34 crore (we
estimated Rs 28 crore). This was due to a 291 bps expansion in the
EBITDA margin and ~9% YoY decline in deprecation charges. During
FY10, profits improved ~7% YoY to Rs 134 crore leading to a 360 basis
points expansion in the net profit margin to 19.6%. Niche Generics posted
a loss of £0.2 million in FY10 vis-à-vis loss of £1.3 million in FY09.

Going ahead, we expect the consolidated net profit to grow at FY10-12E

CAGR of ~18% to Rs 184 crore, clocking net profit margin of 17.4% in
FY12E.

Exhibit 5: Common size P&L statement

Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10
Net Sales 100.0 100.0 100.0 100.0 100.0
Depreciation 4.2 3.1 3.0 3.1 3.2
Interest -0.3 0.0 0.2 0.1 0.0
PBT 19.4 24.1 24.3 24.0 22.9
Tax (% to PBT) 2.5 20.0 19.9 18.9 13.7
Net Profit 19.5 19.4 19.5 19.5 19.7
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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Unichem Lab (UNILAB)

Valuation

Unichem Laboratories (ULL) is a significant player in the Indian midcap

pharma space. We like ULL’s rich US pipeline of 15 ANDAs including
eight approvals and four launches. We expect a meaningful contribution
to the EPS from its 100% European subsidiary from FY11E onwards. We
expect the Indian business to penetrate deeper into the chronic segment.

Unichem is poised to grow at ~18% CAGR (on a higher base) over

FY10E-12E to Rs 1058 crore. We believe Unichem is at an inflection point
and will likely witness robust growth numbers, going forward. The stock
is currently trading at ~8x FY12E EPS of Rs 51. We maintain our target
price of Rs 486 on Unichem with a STRONG BUY rating, ~9.5x FY12E
earnings, implying an upside potential of 22%.

Exhibit 6: Valuation Matrix

Sales (Rs Sales Gr. EPS Gr. RoNW RoCE
Cr) (%) EPS (Rs) (%) PE (x) EV/EBIDTA (x) (%) (%)
FY09 735.2 9.5 30.0 112.4 13.3 10.1 22.3 23.2
FY10E 765.5 4.1 36.9 22.9 10.8 7.7 23.3 25.7
FY11E 905.7 18.3 42.1 14.2 9.5 6.2 22.4 26.1
FY12E 1057.8 16.8 51.1 21.4 7.8 4.9 23.0 26.9
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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Unichem Lab (UNILAB)

ICICIdirect.com Coverage Universe

Alembic Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code ALECHE CMP 48 FY08 1003.2 8.0 5.9 7.3 32.6 19.1
Target 46 FY09 1116.1 3.4* 14.6 8.9 14.0* 11.3
MCap 659.7 Upside (%) -3 FY10E 1141.7 3.6 13.3 7.3 8.1 8.8
FY11E 1222.9 4.6 10.3 5.8 12.2 11.4

Biocon Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code BIOCON CMP 284 FY08 1108.2 23.2 12.3 9.5 14.8 13.8
Target 335 FY09 1608.7 12.0 18.2* 19.2 11.4 13.2
MCap 5687.0 Upside (%) 18 FY10E 2367.8 14.7 19.4 12.9 12.4 15.6
FY11E 2819.3 20.0 14.2 10.9 18.8 22.8

Dishman Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code DISHPHA CMP 217 FY08 803.1 14.7 14.7 14.7 21.3 9.5
Target 230 FY09 1062.4 18.2 11.9 9.3 20.8 13.6
MCap 1747.5 Upside (%) 6 FY10E 911.9 15.8 13.7 10.9 18.0 9.5
FY11E 1075.3 19.8 11.0 7.8 18.4 12.1

IPCA Labs Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code IPCLAB CMP 246 FY08 1051.3 10.9 22.6 5.7 23.1 15.2
Target 266 FY09 1284.0 8.1 30.4 4.1 16.0 19.6
MCap 3073.1 Upside (%) 8 FY10E 1516.3 17.3 14.2 3.1 26.7 24.1
FY11E 1745.4 18.2 13.5 2.5 22.8 21.9

Piramal Health Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code NICPIR CMP 509 FY09 3281.1 15.1 33.7 20.4 24.0 17.7
Target 458 FY10E 3671.1 23.1 22.1 16.1 28.3 18.8
MCap 10639.1 Upside (%) -10 FY11E 4123.4 25.2 20.2 13.9 25.4 21.8
FY12E 4828.7 31.8 16.0 11.5 26.1 22.9

Sun Pharma Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code SUNPHA CMP 1538 FY08 3356.7 71.8 21.4 19.7 29.8 30.4
Target 1600 FY09 4271.4 88.1 17.5 16.3 25.9 28.5
MCap 31860.9 Upside (%) 4 FY10E 3999.3 63.7 24.2 23.3 17.4 17.9
FY11E 4920.7 84.2 18.3 16.7 19.3 20.8

Glenmark Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code GLEPHA CMP 273 FY08 2037.4 25.4 10.7 9.5 41.7 34.2
Target 325 FY09 2093.0 7.7 35.7 21.8 19.4 16.4
MCap 7339.4 Upside (%) 19 FY10E 2373.3 11.6 23.6 14.5 12.8 14.1
FY11E 2730.8 19.9 13.8 11.1 19.7 20.6

Lupin Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code LUPIN CMP 1775 FY08 2706.4 49.8 35.7 35.6 31.9 22.2
Target 2101 FY09 3775.9 61.3 29.0 24.4 35.6 23.6
MCap 15739.4 Upside (%) 18 FY10E 4740.5 78.7 22.6 19.5 33.0 25.8
FY11E 5930.3 94.3 18.8 14.5 27.5 25.7
FY12E 6997.7 116.7 15.2 11.3 24.8 24.7

Unichem Labs Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code LUPIN CMP 398 FY09 735.2 30.0 13.3 10.1 22.3 23.2
Target 486 FY10E 765.5 36.9 10.8 7.7 23.3 25.7
MCap 1436.1 Upside (%) 22 FY11E 905.7 42.1 9.5 6.2 22.4 26.1
FY12E 1057.8 51.1 7.8 4.9 23.0 26.9

Indoco Remedies Sales (Rs Cr) EPS (Rs) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code LUPIN CMP 410 FY09 350.6 25.6 16.0 11.5 11.3 10.9
Target 403 FY10E 398.3 34.2 12.0 9.6 13.3 11.1
MCap 503.7 Upside (%) -2 FY11E 466.1 42.6 9.6 7.2 14.3 13.5
FY12E 530.6 49.0 8.4 6.2 14.3 13.8

ICICIdirect.com | Equity Research

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 Unichem Lab (UNILAB)

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce, and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
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research@icicidirect.com

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