Alembic Pharmaceuticals Ltd. share price target

Specialty contribution in the domestic branded space increased to 63% in FY19 from 54% in FY14. However, despite having an established set up, growth (FY14-19 CAGR of 5%) has lagged the industry growth curve. The company is consciously focusing on this aspect with focus on overhauling of distribution channels (defocusing on trade generics). Overall, we expect...

22 January 2020 by International Formulations (+48% YoY), supported by the US (+61% YoY; 43% of sales) and Non-US (+15% YoY; 12% of sales) segments. However, muted growth in India (1% YoY; 30% of sales) and API business (-14% YoY; 15% of sales) dragged growth to some extent. Gross margin shrank marginally by 30bp YoY to 75% due to the change in 25%) led by lower employee cost (-70bp YoY) and other expenses (-470bp YoY), partly offset by higher R&D; expense (+110bp YoY). EBITDA increased PAT grew at a higher rate of 38% YoY (v/s EBITDA growth) to INR2.3b (our Sartans-led opportunity is expected to continue for the next 3-6 months. ALPM incurred capex of INR5.5b in 9MFY20, of which INR1.8b was in 3QFY20. As most sites would be ready by FY20, it would likely incur maintenance-related capex of INR3-3.5b annually. Gross debt stood at INR14.1b and cash at INR590m at end-3QFY20.

Alembic Pharma (ALPM) reported a 15% EBITDA beat in Q3 driven by a sales beat and stable opex despite an additional expense hit from Aleor-Derma unit commercialisation.

ALPM: Entering into new multi-year earnings cycle initiate with BUY; Weekly Eco Wrap: Spotlight on Fed and ECB

Alembic Pharma (ALPM) has underperformed the midcap and Sensex indices since 2015 due to subdued earnings. This cycle should reverse in the next 3-4 years.

ALPM's secret sauce remains its ability to scale with judicious capital allocation and ALPM IN 8.0 -1.2 -7.8 Daily Vol. (3M Avg.) execution prowess to capitalize on shortages and limited competition products. NIFTY st 3.5 1.1 14.4 *as on 1 November 2019; Source: Bloomberg, MNCL Research Moreover, domestic business, presently undergoing a strategic reset, should revert...

Revenues and margins outperform in US due to supply shortages

In Q1FY20, total revenues of Alembic Pharma increased by 10% YoY to Rs 9.5 bn (below our estimates Rs 9.8 bn).

1QFY20's sharp improvement in operating performance was driven by short-term opportunities in the US, which will not persist. Sustainable growth relies upon approvals for lucrative onco-injectables and derma products, which will reflect in revenues only by FY22E. Meanwhile in India, the co is consistently underperforming the broader market. Hence, we lack visibility on revenue growth above 13% CAGR over FY19-21E. Additionally, incremental stress on margins (-100bps over FY19-21E) will restrict PAT CAGR to 11%. Valuations, too, remain unsupportive at 21.1/16.8x FY20/21E P/E. We maintain NEUTRAL on ALPM following a miss on our revenue estimates, while profitability was higher than expectation. Growth across segments was muted, barring the US. Our TP is unchanged at Rs 570 (18x FY21E EPS).

Specialty contribution in the domestic branded space increased to 63% in FY19 from 54% in FY14. With ~3900 MRs at its disposal, the company enjoys a wide reach among doctors. We expect the specialty segment to remain a key driver for domestic market on the back of aggressive product launches and constant addition of new speciality segments & sub-segments....