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    Unichem Labs.

    UNICHEMLABGood
    Healthcare·25 Jan 2016
    Management Summary

    Unichem Laboratories reported a positive Q3 FY16, driven by strong domestic and US business growth. The company highlighted the positive impact of its restructuring initiatives and the improved performance of chronic and legendary brands. An exceptional item related to the retrospective application of the Bonus Act impacted profitability, but management expressed confidence in maintaining growth momentum and outlined significant capex plans for capacity expansion and regulatory compliance.

    Highlights

    8
    • Q3 FY16 Turnover stood at Rs.306.3 Crores.

    • Q3 FY16 EBITDA was ~Rs.34 Crores, with Net Profit at ~Rs.23 Crores.

    • Domestic business grew ~19% in Q3 FY16, reaching Rs.189 Crores from Rs.158 Crores YoY.

    • Year-to-date (9M FY16) Domestic turnover reached ~Rs.572 Crores, a 13% growth.

    • US subsidiary reported a 39% turnover growth for 9M FY16, with profits of $0.8 million.

    • International formulations showed a 16% growth.

    • An exceptional item of ~Rs.3.5 Crores (net of tax) was recorded for the retrospective impact of the amended Bonus Act for FY15, with current year's impact also booked in Q3.

    • Capex for FY16 is expected to be between Rs.125-150 Crores, with ~Rs.100 Crores already spent.

    What Changed2

    vs Q4 FY16

    Guidance items9 → 10 (+1)Risks discussed5 → 4 (-1)
    Key financials

    Metrics

    7

    Periods

    2

    Headline

    4
    • Turnover
      ₹306.3 Cr
    • EBITDA
      ₹34 Cr
    • Net Profit
      ₹23 Cr
    • R&D Spend
      4%

    9M

    3
    • Turnover
      ₹921 Cr
    • EBITDA
      ₹111 Cr
    • PAT (after exceptional)
      ₹72.4 Cr

    Segment breakdown

    Domestic Business
    ₹189 Cr Q3 Turnover19% Q3 Growth₹572 Cr YTD Turnover13% YTD Growth7.5% Price Growth3% New Product Growth
    US Subsidiary
    39% 9M Turnover Growth0.8 Mn 9M Profit
    International Formulations
    16% Growth
    API Business
    7% % of Total Turnover
    List

    Guidance & targets

    10
    CategoryTargetPriority
    Revenue
    Domestic Business Growth
    robust double-digit growth
    Medium
    Revenue
    US Business Growth
    over 35%
    High
    Revenue
    International Markets Growth
    similar growth
    Medium
    Revenue
    Cosmetology Division Revenue
    Rs.50 Crores
    Medium
    Capex
    Total Capex
    Rs.125-150 Crores
    High
    Capex
    Total Capex
    ~Rs.100 Crores
    High
    Product Pipeline
    ANDA Filings
    at least one or two filings
    Medium
    Product Pipeline
    New Product Research & Filings
    2-3 years
    High
    Product Launch
    Azilsartan Launch
    February end or April
    High
    Profitability
    Tax Rate (PBT)
    22-24%
    High

    Risks & concerns

    6
    RiskSeverity

    Retrospective impact of amended Payment of Bonus Act, 1965

    Resulted in an exceptional item of ~Rs.3.5 Crores (net of tax) for FY15 and increased current year's payroll costs, all booked in Q3 FY16.Management acknowledged

    medium

    EU case liability

    A liability was charged against the company in an EU case, which is currently sub judice, with no new developments reported.Management acknowledged

    medium

    Capacity mismatch for Niche Generics

    Overlap in products and manufacturing plants between US and Niche Generics business leads to supply bottlenecks, prioritizing higher-realization US market and slowing Niche's growth.Management acknowledged

    medium

    Impact of new NLEM policy

    While Telmisartan market is now under NLEM, management expects minimal impact as their prices are largely aligned with NLEM, and major impact from Losar was already absorbed.Management downplayed

    low

    Areas of Evasion(2)

    • Specific acute/chronic growth numbers for the quarter
    • Addressable market size for US pending approvals

    Q&A highlights

    3

    “In Q3FY16 chronic and acute growth is in line with overall growth that we have given. I do not have separate numbers as of now in front of me. Historically, our Q3 is less than Q2 but after a lot of efforts you see that for the first time we are able to bring Q3 numbers almost at par with Q2.”

    Analysts sought specific breakdown of domestic growth drivers, which management could not provide immediately, indicating a lack of granular real-time data on segment performance.

    asked by Anand Sharma

    3 min read7 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    07

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.