Detailed narrative
Strong Domestic Business Performance and Strategic Initiatives
Unichem's domestic business demonstrated robust growth in Q3 FY16, with turnover increasing by ~19% to Rs.189 Crores compared to Rs.158 Crores in the prior year. Year-to-date, domestic turnover reached ~Rs.572 Crores, reflecting a 13% growth. Management attributed this to successful restructuring, manpower rationalization, and strategic decisions that have started paying dividends, particularly in chronic and legendary brands like Losar and Trika. The company also noted a 7.5-8% price growth and 3% new product growth contributing to the overall domestic expansion.
International Business Driven by US Growth
The international business, primarily driven by the US market, continued its strong trajectory. The US subsidiary reported a significant 39% turnover growth for the nine months ended December 31, 2015, achieving a profit of $0.8 million. International formulations, excluding API, showed a 16% growth. Management aims to maintain this growth momentum, supported by existing products and upcoming launches, with non-regulated markets constituting less than 10% of international sales.
Exceptional Item and Employee Costs Impact
The company recorded an exceptional item📎 of ~Rs.3.5 Crores (net of tax) in Q3 FY16 due to the retrospective amendment of the Payment of Bonus Act, 1965, applicable from April 1, 2014. This amount pertains to the financial year ended March 31, 2015, whose accounts were already audited. Additionally, the impact for the first three quarters of the current fiscal year was also accounted for in Q3, leading to a sequential increase in payroll costs. Management clarified that without this bonus impact, payroll costs would have remained relatively stable sequentially.
Capex Plans for Capacity Expansion and New Facilities
Unichem has significant capital expenditure plans, with approximately Rs.100 Crores already spent in the current year, primarily on the Goa expansion, API side at Pithampur, and a new site in Kolhapur, Maharashtra. The total capex for FY16 is projected to be between Rs.125-150 Crores. For the next fiscal year (FY17), similar expenditure of around Rs.100 Crores is anticipated, focusing on the second phase of Goa, Kolhapur, and API plant development to ensure international inspection readiness.
Product Pipeline and R&D Focus
The company continues to focus on R&D, with expenditure around 4% of turnover in Q3, and cumulatively 4.5% or upwards. Unichem aims for at least one or two ANDA filings every quarter. They have identified 10-15 new products that will take 2-3 years for research and filing. In the domestic market, new launches include Teneligliptin in the Gliptins market and Vilazodone in the antidepressant segment. The company is also preparing to launch Azilsartan, a new ARB, by February end or April.
Niche Generics Challenges and Future Outlook
The Niche Generics subsidiary experienced lower traction due to an overlap with the US business. Management explained that shared manufacturing capacity for US FDA-approved products and Niche products led to a supply bottleneck, with focus shifting to the higher-realization US market. Niche's growth is expected to remain flat unless new products, which do not clash with US requirements, are launched in the next year. The company is working towards Niche breaking even, contingent on these new product approvals.
Therapy Focus for Domestic Launches
Unichem is strategically focusing on four major therapeutic areas for domestic growth: antihypertensives (ARBs), diabetic market (oral antidiabetics like Gliptins), antidepressants, and dermatology/cosmetology/infertility. The cosmetology division, currently at ~Rs.17 Crores, is targeted to cross Rs.50 Crores in the next three years with new product introductions. The company aims to be an early entrant for new molecules in these growing segments to drive market share.