Total revenue grew 40 per cent at Rs 172 crore against Rs 123 crore in the corresponding quarter of previous fiscal. Ebitda (earnings before interest, taxation, depreciation and amortisation) margin improved 100 basis points to 9.5 per cent from 8.5 per cent in the previous year quarter.
While the profitability margins haven’t fully recovered from the impact of raw materials price increase, the management believes it has bottomed out with respect to raw material prices.
The company said it added 9 new projects this quarter, 4 of which are commercial stage intermediates. The USFDA (United States Food and Drug Administration) audit for unit-2 completed with no observations, it added.
The stock hit a 52-week low of Rs 431 on December 11, 2018, had corrected 74 per cent from its all-time high level of Rs 1,689 touched on April 5, 2017, on the BSE in intra-day trade.
Analysts at Anand Rathi Share and Stock Brokers believe traction in niche active pharmaceutical ingredients (APIs) such as salmeterol and a pick-up in commercial CMS custom manufacturing solutions) molecules would drive margins.
Considering the steep fall in the stock price and better earnings assurance, the brokerage firm upgrades recommendation to a Buy. The stock was,however, trading above 12-month target price of Rs 693 per share.
Beleaguered by several issues like spike in key raw material prices, delay in Salmeterol approval in the US, and negative operating leverage due to underutilized plants; Neuland Lab’s FY19 performance has been a repeat of the previous year. However, the company has been able to report robust revenue growth of 34 per cent YoY over 9MFY19, aided by resolution of capacity issues.
With strong visibility on softening of raw material price hikes, backward integration for key molecules like Cipro/ Levetiracetam, scale up in high margin segments of Niche API/ CMS, increased contribution from Unit 3, and a significant ramp-up in the generic Salmeterol market in the US by 2HFY20; analysts at HDFC Securities expect around 14 per cent revenue CAGR, around 900bps EBITDA margin expansion and around 5x jump in earnings over FY19-21E.
We are also enthused with Neuland Lab’s progress in the CMS segment with the inclusion of 4 new commercial projects in the third quarter; the brokerage firm results review with remain bullish on the stock and maintain BUY with a target price of Rs 830.