Detailed Narrative
Q4 & FY16 Financial Performance Overview
Unichem Labs reported a strong financial performance for Q4 and the full year FY16. Consolidated Income from Operations for FY16 grew 11% to Rs. 1335 Crores, while EBITDA saw a significant 62% increase to Rs. 164 Crores, with margins improving to approximately 12.28%. For Q4 FY16, consolidated Income from Operations was Rs. 301.5 Crores, an 18% YoY growth, and net profit stood at Rs. 28.2 Crores. The company's standalone operations also showed healthy growth, with FY16 Income from Operations up 12% to Rs. 1222 Crores and EBITDA up 40% to Rs. 142 Crores.
Domestic Formulations Business Performance and Outlook
The domestic business demonstrated robust growth, with Q4 FY16 sales reaching Rs. 171.25 Crores (up 17% YoY) and FY16 sales at Rs. 742.92 Crores (up 14% YoY). This segment contributed approximately 61% to the overall standalone business. Management acknowledged the impact of regulatory changes, with 2-2.5% of products (Rs. 15 Crores) affected by Fixed Dose Combination (FDC) bans and less than 20% of the portfolio by the National List of Essential Medicines (NLEM). Despite these headwinds, the company aims to maintain double-digit growth, targeting 12-14% for the next year, driven by volume improvement and increased per-person productivity, which has crossed Rs. 2 lakhs.
US Generics Business and Pipeline Expansion
The US subsidiary continued its strong growth trajectory, clocking over 30% growth for the year and reporting a profit after tax of $1.2 million. As of March 2016, Unichem had 20 approved ANDAs out of 36 filings. The company plans to maintain an aggressive filing rate of 6-8 ANDAs annually, with a target of 2-3 filings in Q1 FY17. Furthermore, 14 products have already been launched, and another 2-4 products are expected to be launched in Q1 and Q2 FY17. The Goa expansion plan is nearing completion, which is expected to support this growth.
International Operations and Niche Generics
Beyond the US, the Niche Generics business faced a challenging year, primarily due to changes in tender business models in West Europe and internal conflicts with the US focus. However, management noted that Niche Generics broke even at the operating level in Q4 FY16 and is close to breakeven in the current month. The company is hopeful of launching new products and participating in tender businesses to improve profitability. In Brazil, two generic products are commercialized, with plans to launch two more in Q2 FY17, following ANVISA approvals.
Capex, R&D Investments, and Biosimilars
Unichem Labs has outlined a capital expenditure plan of Rs. 150-200 Crores for FY2017-2018, primarily allocated to a new API facility near Kolhapur, Maharashtra. This facility is expected to commence operations in phases after a few quarters. R&D spend is maintained between 4-5% of turnover, with a willingness to increase to 5-6% if opportunities arise. The company is also progressing with its biosimilars pilot plant at Goa, focusing on anti-diabetic and non-cancer MABs, with an ultimate target for regulated markets. A potential JV for biosimilars could be explored if costs are substantial.
Taxation and Exceptional Financial Items
The company continues to operate under Minimum Alternate Tax (MAT), with the rate increasing to over 21%. Deferred tax for Q4 turned negative primarily due to the reversal of earlier provisions, caused by the postponed capitalization of the Goa facility and the Bio pilot plant, which will now be capitalized in Q1 FY17. An exceptional item📎 involved a diminution in the value of investments in Brazil, resulting in a Rs. 22.7 Crores write-off provided in standalone other expenses. Additionally, a legal matter concerning Euro 13.97 million notes for Perindopril is ongoing, with a hearing expected in October and a potential resolution taking several years.