by Suhani Adilabadkar
Alembic Pharma exhibited no symptoms from the global pandemic coronavirus in the March quarter results FY20. Its stock price jumped 45% while the BSE healthcare index ended 2% higher over the past one month. Fourth quarter results were strong and sturdy while continuing its growth momentum with successive new 52-week highs after Q4 numbers came out.
Founded in 1907, Alembic Pharmaceuticals (APL) manufactures branded formulations, international generics and APIs powered by its five state-of-the-art manufacturing facilities in Gujarat and Sikkim. Makers of Wikoryl, Azithral, Roxid and Althrocin, Alembic Pharma garners roughly 40% of its revenues domestically and remaining from exports. With a robust quarterly performance, Alembic management has given a strong positive future outlook, badly needed in the present Covid-19 environment.
Quick Takes
Revenues jumped 30% YoY at Rs. 1,207 crore, operating profit almost doubled and Net Profit grew 55% YoY in Q4FY20.
US generics segment has grown 84% YoY in March quarter FY20 at Rs. 577 crore.
India branded formulations business grew 13% YoY at Rs. 342 crore driven by acute segment growth of 24% while chronic reporting 10% YoY jump.
US business has been growing at a CAGR of 28% over the past three years.
March Quarter FY20 was unexpectedly strong
Driven by strong US growth and revival of domestic business, operating revenues jumped 30% YoY at Rs. 1,207 crore in Q4FY20 compared to Rs. 927 crore in the same period, previous year. Operating profit almost doubled to Rs. 327 crore in the March quarter FY20 from Rs. 178 crore corresponding period, previous year aided by superior product mix and higher operating leverage.
Operating margin jumped from 19.2% in Q4FY19 to 27.1% in March quarter FY20. Net Profit stood at Rs. 203 crore in Q4FY20 compared to Rs. 131 crore in corresponding quarter previous year, rising 55% YoY. R&D expense for the quarter was Rs. 185 crore, roughly 15% of sales. Alembic Pharma has received 34 approvals during the year and on cumulative basis 119 ANDA approvals.
Defying expectations amid significant capex
Street was expecting Covid-19 impact on US sales, disruption in the domestic market, shortages of labour and raw material interruption from China. APL on the whole however, seems to be free from coronavirus negativity in Q4. Subdued performance in FY17 and 18 had previously led to underperformance on bourses for APL as analysts became sceptical of its huge capex thrust, high R&D expenses and poor performance on the domestic front.
APL currently seems to be on the other side of the table currently, reporting consistent growth in the US market for the past few quarters along with revival of its domestic business after one year of strategic interventions by the management. Revenue basket is segmented into US generics, India, ROW and API contributing 48%, 28%, 11% and 13% respectively in Q4FY20.
The US market growth engine has been humming along strongly from Q4FY18 and is still going full throttle, aided mainly by management focus on product profitability and taking advantage of opportunities such as the sartan impurity issue in the US. Though the sartan opportunity has been a major growth driver from the past 4-5 quarters, APL plans to launch 20-odd products every year to further consolidate its US growth moving at a CAGR of 28% over the past three years (2017-20).
With respect to US future growth momentum, Mr. Pranav Amin, MD, Alembic Pharma said, “Consistently for the last three quarters, US revenues have been at about $70 odd million every quarter, so it is safe to say that this is a new base for now. Moving forward from this is what we have seen in terms of new launches and new opportunities we can add to it, so our new base is $70 odd million per quarter for the US business”. APL has launched 5 products in Q4FY20, 22 in YTD FY20 and plans 10 more in H1FY21. US generics segment has grown 84% YoY in March quarter FY20 at Rs. 577 crore.
Ex-US or ROW comprising Europe, Canada, Australia, Brazil and South Africa has been growing at a CAGR of 21% in the past five years and in Q4FY20, by 63% YoY at Rs. 132 crore. A de-growth of 33% YOY in Q4FY20 was reported at Rs. 155 crore due to loss of one of its contract manufacturing deals in Q3 FY20 in the API segment while the management expects positive momentum of 15-20% growth in FY21. The India business has grown strongly in March FY20 after muted performance for the past six quarters.
Indian branded formulations business grew 13% YoY at Rs. 342 crore driven by acute segment growth of 24% while chronic reporting 10% YoY jump. APL management has been making certain strategic interventions with regard to its domestic formulations business such as curtailing discounts on institutional business, rationalizing tail brands and removing focus on generic portfolios.
India formulation business which has been growing at a CAGR of just 5% over the past five years is on the path of revival, evident from Q4 numbers and management expects return of full growth from Q1FY21. Mr Shaunak Amin, MD, Alembic Pharma said, “I definitely look at outgrowing the market and good double-digit growth with the market share gain over the next three years at least”.
Covid Impact and New Growth Opportunities
Covid Impact has been neutral for APL with respect to logistics issues and in this regard, Mr Amin clarified, “There were some disruptions in the first 10 days of the lockdown, but now it is extremely smooth and there is a huge support from the government both central and state, so we are getting absolute smooth movement of products”.
The company is also not facing any supply constraints in the US and Indian markets and though raw material disruption was witnessed in January and February, 70% normalcy has returned in the month of March. APL maintains 3-5 months raw material inventory and has 15% dependency on China. Essential medicines such as antibiotics, cough and cold due to Covid-19 sensitivity, cardiovascular did not witness any slowdown while non-essentials such as women’s healthcare and orthopaedic demand was affected. Thus, as per APL management, there was a neutral balancing act in the last few days of the month of March. Mr Pranav Amin reiterated, “Pharma is one area that demand has not really changed much. Market wise, we are not seeing any changes on that”.
Apart from all this positivism ranging from US growth trajectory to domestic formulation business revival, meaningful contribution from API and ROW to neutral impact from Covid-19 and strong compliance record with USFDA, there is another growth factor, capex of Rs. 2,000 crore nearing its end. Its three new plants for US markets, oncology oral solids, general injectables and ophthalmic will start contributing meaningfully from FY22. Alembic Pharma has a long runway for growth.
