Monday, May 11, 2009

[Investors Please Listen] Venus Remedies Q4FY09 Result Update ; Results below expectations ; BUY ; Target : Rs275

Results below expectations


BUY

 

CMP: Rs191                  Target Price: Rs275


Venus reported a muted growth of 1% in revenues during Q4FY09 to Rs634mn. On QoQ basis, revenue de-grew by 3%. Lower growth in revenue is mainly because of muted growth in exports and slow off-take (decline of 13% QoQ) by strategic partners in the domestic market. On the operating front, EBIDTA declined by 11% to Rs149mn in Q4FY09 (Rs 167mn in Q4FY08). EBIDTA margins contracted by 320 bps to 23.5% in Q4FY09 mainly on the back of 100 bps increases in employee cost and 500 bps increase in other expenses to 17% of sales. Due to contraction in EBIDTA margin, lower other income and higher interest cost (up 69%) in Q4FY09, the RPAT declined by 21% to Rs 97mn (Rs 123mn in Q4FY08). For FY09, revenue was up by 24% to Rs2645mn. EBIDTA margins for the year declined by 230bps to 23.4% largely because of change in accounting policy towards R&D expenditures. Higher interest (up by 61%) and depreciation cost (up by 50%) coupled with 88% decline in other income has restricted PAT at Rs427mn (up by 11%) in FY09.

Venus Remedies was not able to repay its FCCB's liability of US$14.2mn (Rs700mn) which was due on May 4th 2009. CRISIL has downgraded its rating on Venus Remedies from 'A-/Stable' to C (means substantial risk) because of Venus Remedies failure to service its FCCBs liabilities. Though management has indicated that they are working on various options, we are taking a one time hit of Rs114mn towards interest and Rs120mn towards foreign currency loss on outstanding FCCBs in FY10E. We are maintaining our revenue estimate for FY10E, however taking into account the one time hit towards interest and foreign currency loss on outstanding, we have downgraded our earnings by 9% to Rs 54.5 in FY10E (as compared to the old estimate of Rs 59.6).  We are also introducing FY11E estimates (EPS of Rs 69.3in FY11E). At CMP of Rs 191, the stock is trading at 3.5x FY10E EPs of Rs 54.5. We maintain buy with a target price of Rs275 (4.4x rolling EPS of Rs61.9).


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