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Unichem Laboratories – Review

August 26, 2010

Motilal Oswal, the fundamentals research company has initiated coverage on Unichem Laboratories with a BUY Rating. Here is the justification on the same.

The Indian pharmaceuticals industry is likely to grow at 12-15% compounded average growth rate (CAGR) over FY10-FY12E after having grown by 14% CAGR over the last 15 years. Unichem’s domestic business, which contributed 81.5% to revenues in FY10, had a market share of 1.5% and is currently ranked 25th.

Strong brands power domestic growth – Presence in Top 100 Drugs of India worth Rs 200 Cr sales. Unichem has a presence in only 25% of therapeutic segments in the Indian market and is working on expanding its therapeutic coverage. This planned coverage expansion and strong presence in the fast growing Cardiovascular, Diabetes and Neurology segments is estimated to grow the domestic formulations business by 13.5% CAGR over FY10-FY12.

Unichem entered the US market in FY10 with 4 products. Current approvals by USFDA stand at 9, with 6 more awaiting approvals and 1-2 filings per quarter likely in FY11 and FY12. US revenue is estimated at $4-5 million in FY11E and $8-9 million in FY12E.

The
company pays out one third of its earnings as dividend. Unichem has announced a split of its share from `5 face value to `2 face value. With an ROE of 23% and greater than `60 per share in cash and cash equivalent at FY12E end, the stock is extremely attractive at less than 10xFY12E and more than 3% FY12E dividend yield. MOSL Equities recommend a BUY with a target price of `560 – 12xFY12E earnings.

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