Unichem Laboratories total income growth flat, affected by domestic inventory correction

According to Fortune Equity Brokers (India), Unichem Laboratories’ domestic business muted growth of 4.2 per cent was on expected lines. There was an inventory correction at the distributors’ end in the month of June due to the implementation of the new pricing policy. There was also a slight slowdown in overall domestic market which too brought growth down during the quarter.

Unichem has put in place all the building blocks required for a sustainable growth for the domestic business in the last two years. The company has been making changes to its distribution model by reducing its dependence on distributors and focusing more on C&F agents. The company has also doubled its field force over the last three years to take its total count close to 3,000 (2,400 MRs and 600 managers) thereby adding on to a forseeable growth spurt. Meanwhile, the company reported 47.5 per cent year-on-year (Y-o-Y) growth in APIs.

International formulations surprised negatively and posted a fall of 14.2 per cent YoY as the company’s contract manufacturing (CM) business witnessed pressures. It’s client has witnessed some pricing pressure in the products supplied by Unichem. Moreover, more than adequate supplies in Q4FY13 too had an effect. However, the company has seen good off-take in its US and European subsidiaries.

Niche Generics (European subsidiary), which had broken even last quarter, has again posted net profit margin of six per cent in Q1FY14. We believe that the exports business should perform much better from next quarter given large depreciation in rupee and inventory replenishments in CM business. The company has sold off its Indore SEZ facility to Mylan for Rs1.6 billion and will utilise the proceeds to expand capacity at its Goa facility.

EP News Bureau – Mumbai