Unichem Labs

THE Rs 660-crore Unichem Laboratories may be a midcap stock to watch out for. The company reported an improved performance for the quarter ended December 2009, registering a 20% gain in earnings and 13% in revenues. What stood out was its good show in the local markets. The Mumbai-based company earns over 70% of its revenues from its domestic formulations business. The Street cheered the news, pushing the stock up by 4% to Rs 345. 

   The superior performance in the quarter to December comes as a welcome relief for investors — given the fact that Unichem's performance in the previous two quarters had been quite subdued. The company took corrective actions to improve the market penetration of its products. During the past six months, it has managed to clear its pipeline with stockists and retailers. The company has now shifted its focus from pushing primary sales (to distribution) to increasing secondary sales (to consumers). 

   Unichem has been focusing on promoting the prescription generation of its products. These efforts have been instrumental in boosting the company's brands in the market. Unichem outperformed the domestic pharma industry during the quarter. According to data released by ORG-IMS, while the domestic pharma market grew by 19% between September and November 2009, Unichem has grown by 31.5% during the same period. The company also benefited from lower raw material costs during the December quarter compared to the year ago period. This has helped boost the company's profit margins. 

   Unichem's stock had been an underperformer vis-à-vis the Sensex till November last year. However, it has started witnessing positive action of late and has gained 32% since December 2009. The company is now valued at Rs 1,200 crore — a little less than twice its revenues. It is trading at a P/E of 10. These are fair valuations for a small-sized pharma company. 

   If Unichem is able to sustain the current traction in its business operations, it holds promise for investors scouting the mid-cap segment for value buys.