STOCK DATA

BUY RS:235
TARGET RS:336
UNICHEM LABS (UNILAB) POTENTIAL UPSIDE 31.72%
BLOOMBERG CODE UL IN
Unichem Laboratories Ltd, a mid sized Pharma SHARES OUTSTANDING (Mn) 36
company operates in the business of PROMOTERS HOLDING 48.40%
formulations and manufacture of Active FREE FLOAT 51.50%
Pharmaceutical Ingredients (API). It operates FII HOLDING 2.90%
through four divisions: Unichem Pharma,
Unichem Specialities, Unisearch and Neu
Foreva.
 business development and to own
 Unichem Pharma division operates product registrations.
mainly in the areas of pain  Unichem Farmaceutica Do Brasil Ltda.
management, anti infectives, anti (Brazil) has been set up to own product
allergics, digestives and nutritionals. registrations, launch generic and
 Unichem Specialties division’s branded generic products in Brazilian
customers include orthopaedicians, market.
surgeons, gastroenterologists,  Unichem Pharmaceuticals (USA) Inc. has
physicians, pediatricians and been set up for business development,
intensivists. filing of Abbreviated New Drug
 Unisearch division focuses in the areas Application (ANDA’s) and exploring
of diabetology and cardiology. opportunities for marketing alliances in
 Neu Foreva division focuses on North American markets.
neurology and psychiatry.

The Company is headquartered in Mumbai with

five manufacturing facilities located at Roha in
Maharashtra, Goa, Ghaziabad, in Uttar Pradesh,
Pithampura in Madhya Pradesh and Baddi in
Himachal Pradesh.

Unichem Laboratories Ltd. has 4 wholly owned

subsidiaries:

 Niche Generics Limited (UK) it is

engaged in manufacturing formulations,
product development and dossier filing
in European markets.
 Unichem SA (Proprietary) Limited
(South African) has been set up for

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INDUSTRY OVERVIEW
Global Market: The annual forecast by IMS
Health unveiled that the growth of worldwide
pharmaceuticals sales is expected to be stable
in the coming years as compared to a feeble
growth in 2008-09 on account of higher
demand for less expensive generic dugs, lower
new product sales and reduced consumer
demand due to economic downturn. The
growth rate was a meager 1% in USA as
compared to 15% in Asian and African markets.
It is forecasted that emerging markets of China,
Brazil, Mexico, South Korea, Turkey, India and
Russia will contribute an average of 40% of
global sales through 2013. The global CAGR for
pharmaceutical market growth is forecasted to
be 3-6% through 2013. Further, the increasing
opportunities presented by products getting off
patent in international markets offer sizeable
revenue and margin enhancing opportunities.
RECENT DEVELOPMENTS
New Product Launches:
The Company has launched 27 products in
various therauptic segments and plans to focus
more on high margin products like lifestyle
drugs. Out of these new launches, 4 products
have been launched in dermatological segment
and 5 focusing on neuropsychiatry segment.
The Company is virtually debt free and hence
can participate in industry consolidation either
by way of brand acquisition locally or availing an
acquisition opportunity by leveraging the
balance sheet. The Company is evaluating
inorganic growth opportunities especially to
add value to the existing product portfolio.

Domestic Market
India is emerging as a competitive outsourcing
hub and is playing a major role the global
pharmaceutical industry in manufacturing
Active Pharmaceutical Ingredients (API) and
intermediates for drug makers. Global
pharmaceutical companies are establishing long
term relationships with Indian manufacturing
companies and contract research providers in
India. Generic drugs produced in India are
increasingly being accepted worldwide. Thus,
the overall scenario is turning in favor of Indian
Pharma industry.

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FINANCIAL PERFORMANCE
P & L STATEMENT

PROFIT AND LOSS ACCOUNT 2008 2009 2010 2011E 2012E 2013E 2014E 2015E
(RS. IN MILLIONS)
INCOME
SALES
68,417 74,221 75,030 78,748 84,213 90,896 99,918 111,827
LESS: EXCISE DUTY
1,282 698 292 299 320 345 380 425
NET SALES
67,135 73,523 74,739 78,449 83,893 90,551 99,538 111,402
OTHER INCOME
670 948 664 760 760 760 760 760
TOTAL INCOME
67,805 74,471 75,402 79,209 84,653 91,311 100,299 112,162
EXPENDITURE
MANUFACTURING, SELLING AND
ADMINISTRATIVE EXPENDITURE 55,284 56,583 54,742 47,249 50,528 54,538 59,951 67,096
RESEARCH & DEVELOPMENT EXPENDITURE
3,215 2,721 2,912 3,079 3,251 3,423 3,594 3,766
TOTAL EXPENDITURE
60,457 61,735 60,079 50,328 53,779 57,960 63,545 70,862
EBITDA
9,306 15,167 17,749 28,881 30,875 33,351 36,754 41,300
INTEREST
143 190 104 186 194 201 209 216
DEPRECIATION INCLUDING
AMORTISATION 1,814 2,241 2,321 2,945 2,061 1,443 1,010 707
PROFIT BEFORE TAX
7,348 12,736 15,324 25,750 28,619 31,706 35,535 40,377
ADD/LESS:EXCEPTIONAL ITEMS
(535)
PROVISION FOR TAX
LESS: CURRENT TAX (INCLUDING WEALTH
TAX) 1,055 1,610 2,811 7,725 8,586 9,512 10,660 12,113
DEFERRED TAX
415 10 232 - - - - -
FRINGE BENEFIT TAX - -
255 300
NET PROFIT AFTER TAX
5,088 10,816 12,281 18,025 20,034 22,194 24,874 28,264

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 BALANCE SHEET
BALANCE SHEET
AS AT 31ST,MARCH 2008 2009 2010 2011E 2012E 2013E 2014E 2015E
(RS IN. MILLION)
SOURCES OF FUNDS
EQUITY SHARE CAPITAL 1,802.10 1,802.75 1,803.15 1,803.15 1,803.15 1,803.15 1,803.15 1,803.15
SHARE APPLICATION - - 2.64 2.64 2.64 2.64 2.64 2.64
MONEY
RESERVES & SURPLUS 39,350.00 46,641.95 54,485.51 72,510.32 92,543.84 114,738.33 139,612.61 167,876.48
NET WORTH 41,152.10 48,444.70 56,291.30 74,316.11 94,349.63 116,544.12 141,418.40 169682.27
LOAN FUNDS
SECURED LOANS 649.10 2,094.70 1,529.42 1,679.42 1,829.42 1,979.42 2,129.42 2,279.42
UNSECURED LOANS 1,783.00 1,878.41 2,048.35 2,048.35 2,048.35 2,048.35 2,048.35 2,048.35
TOTAL LOANS 2,432.10 3,973.11 3,577.77 3,727.77 3,877.77 4,027.77 4,177.77 4,327.77
DEFERRED TAX LIABILITY 3,226.40 3,236.43 3,468.43 3,468.43 3,468.43 3,468.43 3,468.43 3,468.43
TOTAL LIABILITIES 46,810.60 55,654.24 63,337.50 81,512.31 101,695.83 124,040.32 149,064.60 177478.47

APPLICATION OF FUNDS
FIXED ASSETS
GROSS BLOCK 33,301.50 41,412.70 46,460.08 54,323.16 55,823.16 57,323.16 58,823.16 60,323.16
DEPRECIATION 9,480.10 11,331.40 13,125.35 16,070.23 18,131.64 19,574.63 20,584.73 21,291.79
NET BLOCK 23,821.40 30,081.30 33,334.73 38,252.93 37,691.52 37,748.53 38,238.43 39,031.37
CAPITAL WIP 10,319.20 7,592.94 6,363.08 0.00 0.00 0.00 0.00 0.00
NB + CWIP 34,140.60 37,674.24 39,697.81 38,252.93 37,691.52 37748.53 38,238.43 39,031.37
INVESTMENT 7.62 102.08 5,921.02 5,921.02 5,921.02 5,921.02 5,921.02 5,921.02
CURRENT ASSETS

CASH BALANCE 1,005.50 3,436.96 2,363.93 16,021.56 34,576.82 54,650.18 76,137.13 99,752.30
OTHER CURRENT ASSET 25,140.58 29,070.94 32,082.15 31499.182 33685.1935 36358.37285 39967.16494 44730.7705
TOTAL CURRENT ASSETS 26,146.08 32,507.90 34,446.08 47,520.74 68,262.01 91,008.55 116,104.30 144,483.07
CURRENT LIABILITIES
CURRENT LIABILITIES 10,583.10 11,706.72 13,163.52 6,618.49 6,614.83 7,073.89 7,635.26 8,393.10

PROVISIONS 2,900.60 2,923.26 3,563.89 3,563.89 3,563.89 3,563.89 3,563.89 3,563.89

TOTAL CURRENT LIABILITIES 13,483.70 14,629.98 16,727.41 10,182.38 10,178.72 10,637.78 11,199.15 11,956.99
NET CURRENT ASSETS 12,662.38 17,877.92 17,718.67 37,338.36 58,083.30 80,370.77 104,905.15 132,526.08
TOTAL ASSETS 46,810.60 55,654.24 63,337.50 81,512.31 101,695.83 124,040.32 149,064.60 177,478.47

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  The strong growth in sales across the
historic period from 2008 to 2010 and
the future predicted growth in sales has
resulted in the EBITDA margins
increasing from Rs: 68,417 Mn in 2008
to an estimated Rs: 111,827 in 2015.
 The net profit for FY 2011 also has
registered a healthy growth of 48.22 %,
there is also an increase in the cash
balances in the from Rs: 1005 Mn to Rs:
99752 Mn in the year 2015. So the
company has enough funds to meet
meet immediate short term
requirements. This reduces the need to
raise capital for the same.
 The Company’s operating margins are
improving on the back of reducing raw
material cost, stringent cost control
measures, effective capital utilization
and product mix optimization.
 During FY10, Unichem has launched
Prasugrel (anti-clotting agent). Currently
only 3 companies are marketing the
same in India.
 Unichem's focus is to grow its
portfolio of 18 brands which comprise
20% of the portfolio currently. It
expects atleast 5 brands from this
portfolio to figure in the top 300 brands
in the domestic market, going forward.
Strengths:
Powerful Brands:
There are three powerful Unichem brands
feature among the top 100 Indian
Pharmaceutical brands. The company has been
focusing on building powerful brands.
1. Ampoxin Rs 82 cr
2. Losar – H Rs 57 cr
3. Losar Rs 53 cr
Ampoxin and Losar are chronic segment drugs.
It has been trying to improve the brands of this
segment.
Antibiotics is the fastest growing therapies in
the domestic Pharma market. The Company is
planning to make a foray into this segment.
Presence across diversified therauptic
classes:
Company focuses on therauptic segments too.
Cardiology continues to be the major in this
segment, contributing approximately 42% of the
domestic formulations sales in FY09.
Cardiovascular and is expected to double by the
year 2015.
Threats:
High dependence on few products:
The company focuses on its two product groups
Losar and Ampoxin, generating 25% and 17%
from them in FY09. Ampoxin falls under Drug
Pricing Control Order (DPCO). Under the
purview of DPCO, Pharma companies do not
have the freedom to increase MRP. The
Companies have to appeal to the concerned
authorities to change the MRP.
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Strong Subsidiary in European Market :

Unichem Labs derives around 27% of its consolidated revenue from the global markets. It derives a
sizeable portion of the overseas revenues from Europe through its subsidiary, Niche Generics. With the
help of Niche Generics, the company is expanding its operations to newer territories. Niche Generics has
been filing dossiers with European authorities. In the last two years, it has filed 7 dossiers with the UK
MHRA (Medicines and Healthcare Products Regulatory Agency) and received approval for 4 products. Of
these, 2 products have been recently launched. It is planning to register 26 new products in the next 3
years in EU and other territories. The Subsidiary has broken even at cash level in the quarter ended
December 2009 and is all set to break even at net level in the quarter ended March 2010.

DISCOUNTED CASH FLOW

TERMINAL VALUE
(RS IN MILLIONS) UNDISCOUNTED DISCOUNTED
PERPETUITY GROWTH METHOD 3.00% 1,052,687.48 820413.5644
4.00% 961,005.26 748960.887

NPV OF FREE CASH FLOW 3.00% 379807.50

4.00% 379807.50

EV 3.00% 1200221.06
4.00% 1128768.39

LESS: DEBT 3,727.77

ADD: CASH 16,021.56

IMPLIED EQUITY VALUE 3.00% 1212514.85

4.00% 1141062.17

TOTAL OUTSTANDING SHARES 3606300000

PRICE /SHARE 3.00% 336.22

4.00% 316.41

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SHARE PRICE AS PER OUR ESTIMATES FY11 336.22
CURRENT MARKET PRICE 255.25
EV FY11 1200221.06
MARKET CAP FY11 1212514.85
UPSIDE (PRICE) 31.72%
P/E FY10 51.07
PE FY11F 60.52
PE FY12F 41.47
EV / EBITDA FY11 41.56
EV / REVENUE FY11 14.25
EV/EBITDA FY12 38.87
EV/REVENUE FY12 13.33
RONW% FY11 24.25%
RONW% FY12 21.23%
ROCE% FY11 40.80%
ROCE% FY12 45.94%

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COMPARING THE PEER GROUP WITH THE ABOVE CHART

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PROJECT SUBMITTED BY:

RENJU RAJU, ROLL# 31

VARUN HEGDE, ROLL#48

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