Detailed Narrative
Robust Q2 FY17 Performance Driven by Key Segments
Unichem Laboratories reported a strong Q2 FY17 with total income from operations reaching Rs. 368 Crores, representing a 19% year-on-year growth. This performance was primarily fueled by a 26% growth in International Formulations and an 18% growth in Domestic Formulations. The company's EBITDA for the quarter stood at Rs. 39.6 Crores, reflecting a 15% YoY increase, indicating healthy operational performance.
H1 FY17 Overview and Margin Improvement Targets
For the first half of FY17, Unichem achieved a topline of Rs. 710 Crores, a 14% growth over the previous year. H1 EBITDA was Rs. 83.8 Crores. Management expressed confidence in improving consolidated EBITDA margins by 150-200 basis points on a 12-month basis, driven by sustained growth in India Formulations and continued traction in US and Niche Generics businesses.
Strong Growth in US and UK Subsidiaries
The US subsidiary demonstrated robust performance, clocking a turnover of $19.3 million for H1 FY17, a significant 27% growth. Niche Generics, the UK subsidiary, also showed a turnaround, recording sales of GBP 5.5 million in H1 FY17 (up from GBP 4.1 million last year) and achieving a net profit of GBP 0.18 million, compared to a loss in the prior year. This growth was attributed to opportunities in the UK market and expanded capacity.
Domestic Market Strategic Realignment Yields Results
In the domestic market, Unichem's represented market grew by 16.2% (YTD AWACS data), outperforming the Indian Pharmaceutical Market (IPM) growth of 9.8%. The chronic portfolio showed a strong 21.5% growth as per AWACS, significantly higher than the market's 10%. The strategic decision to move the Unienzyme brand to the OTC route and restructure acute/chronic businesses has started paying dividends, with volume growth of 8.5-9% despite a Rs. 4 Crores impact from FDC bans.
Significant Capex and R&D Investments Underway
Unichem plans an overall capex of Rs. 250-300 Crores over the next two to three years, with approximately Rs. 150 Crores allocated for FY2017. About Rs. 75 Crores of this was already spent in H1 FY17. The investments are primarily for the expansion of the Goa and Pithampur API plants, and a new API facility in Kolhapur is also in phases. R&D expenditure is maintained at 4-5% of standalone turnover, supporting a robust product pipeline.
Product Pipeline and US Launch Strategy
The company aims for 1-2 ANDA filings per quarter, targeting 6-8 filings over the next year. For the US market, Unichem expects to launch about two more products before the end of the current financial year, with six products already approved but not yet launched. The addressable market size for filed/approved molecules is estimated at $15-20 million at the manufacturer's level, with a target market share of 5-25% for new launches.
Other Expenses and Brazilian Subsidiary Update
An uptick in other expenses was noted, attributed to the capitalization of expanded Goa and Pithampur plants, increased R&D expenditure, and higher selling and distribution costs for the growing US business. A provision of Rs. 7 Crores was made for the Brazilian subsidiary in Q2, which management expects to be the last such provision, with a soft launch initiated for one product.