Unichem Labs surges 15%, hits record high in weak market on healthy outlook

Unichem Labs share price: Shares of Unichem Laboratories hit a record high of Rs 876.35, surging 15 per cent on the BSE, on Tuesday in otherwise a weak market, on a healthy outlook. In two days, the stock of pharmaceutical company has rallied 20 per cent, and, in two weeks, it zoomed 42 per cent. In comparison, the BSE Sensex was down 0.44 per cent at 80,791 at 12:05 PM.

Thus far in the calendar year 2024, the market price of Unichem Laboratories has more-than-doubled or skyrocketed 115 per cent, as against 11.8 per cent rise in the benchmark index.

Ipca Laboratories acquired Unichem in April 2023 for a total consideration of Rs 1,830 crore (incl. non core assets of Rs 550 crore). Unichem has a strong US presence and a healthy product basket. The USA continues to remain a prominent and focus market for the company and company’s holding company Ipca.

On September 30, Unichem Pharmaceuticals (USA) Inc, a wholly owned subsidiary of Unichem, entered into agreements with Bayshore Pharmaceuticals LLC, USA, wholly owned step-down subsidiary of Ipca, to purchase USA generics formulations marketing/distribution business of Bayshore USA as a going concern.

Unichem said the integration/consolidation of Bayshore USA’s generics marketing/distribution business into Unichem USA, apart from increasing Unichem USA’s products basket, will help in reducing marketing, logistics, warehousing and other overhead costs. This shall in turn help to improve Unichem USA’s income and profitability going forward.

Meanwhile, over time, Ipca and Unichem can enhance their international footprint by cross-selling products across geographies. Unichem has a strong presence in Brazil, Slovenia, Myanmar, etc. At a combined entity level, the size of UK, South Africa, and Canada businesses could increase by 15-25 per cent, thereby further consolidating the company’s position in these markets. This synergy could take time to play out (1-2 years) as BA/BE studies are required before filing these products.

Ipca is working on enhancing capacity/productivity at Unichem and believes it does not require additional capacity for the next 4-5 years. This business has GLP-1 capabilities (3-4 years down the line), analysts at JM Financial Institutional Securities.

In FY24, Unichem benefited from one-time opportunities (of Rs 100 crore) that will normalise in FY25 and grow thereafter. After the takeover, Unichem’s gross margin profile has improved 200 bps to 61 per cent; in Q1FY25, it was 64 per cent. The brokerage firm expects further 200 bps improvement to 66 per cent by FY27. Analysts expect significant margin improvement from 6 per cent in FY24 to 15 per cent by FY27 with key synergy benefits playing out.

Meanwhile, the pharmaceutical industry focus has clearly shifted from mere capacity addition to technology adoption, green initiatives and efficiency improvement to global standards. The government's focus on infrastructure development, reducing logistics cost for the country and policy initiatives for ease of doing business will further increase the competitiveness of the industry, Unichem said.