For Q1FY2008 Unichem Labor atories (Unichem) has reported a sales growth of 12.1% to Rs153.5 crore, which is lower than expectation of Rs165 crore. The growth was subdued largely due to a sharp 18.8% decline in the company’s exports on account of the appreciation of the rupee.
Unichem’s strong brand building efforts, the continued momentum in its power brands and therapy focused marketing initiatives have caused the domestic formulation business to perform in the quarter. The revenues from this segment grew by an impressive 20.9% to Rs126.8 crore.
Unichem’s operating profit margin (OPM) expanded by 80 basis points to 22.4% in the quarter. The management has also indicated that such a high growth rate for this business might not be sustainable going forward. The company expects the growth to moderate in Q2FY2008, due to DPCO-related price cuts imposed on its largest brand Ampoxin towards the end of Q1FY2008. However, a conservative 11.5% growth in this business in FY2008E is doable and remain optimistic about the company’s ability to beat estimates.
At the current market price of Rs245, Unichem is trading at 8.6x its estimated FY2008 earnings. BuyUnichem, with a price target of Rs 360.
Orchids top line grew by 18.1% year on year (yoy) to Rs238.2 crore in Q1FY2008. The top line growth was above estimates of Rs223.2 crore. Orchids operating profit margin (OPM) expanded by 110 basis points to 29.9% in Q1FY2008. On the other hand, the rising R&D costs (due to FTF filings) and increasing staff costs adversely impacted the margins. On a like-to-like basis (excluding the Rs10 crore incremental cost incurred on FTF filings), the margin expansion would have been even more robust at 530 basis points to 34.1%. Consequently, the operating profit grew by 22.8% to Rs71.2 crore in Q1FY2008.
At the current market price of Rs234, Orchid is quoting at 9.9x its estimated FY2009 earnings, on a fully diluted basis. In view of the bright prospects for the company, Sharekhan retains positive stance on the stock and maintain a Buy call with a price target of Rs 375.
Kotak has a price target of Rs 300 on Orchid Pharmaceuticals.