Alembic Pharma, 1Q FY 2014

7/27/2019 Alembic Pharma, 1Q FY 2014

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Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 1QFY2014 4QFY2013 % chg (qoq) 1QFY2013 % chg (yoy)Net Sales 426 375 13.6 366 16.4Other Income 1 2 (62.4) 0 168.2

Operating Profit 71 64 10.7 52 35.6

Interest 1 2 (19.7) 6 (74.4)

Net Profit 47 44 6.8 31 51.3Source: Company, Angel Research

Alembic Pharmaceuticals posted numbers in line with our expectations. The sales

came in at `426cr, registering a growth of 16.4% yoy, but a tad lower than our

expectation of `434cr. On the operating front, the company posted an OPM of

16.7% vs our expectation of 15.7%. This led the net profits to come in at `46.6cr

(our expectation was of `46.4cr). We recommend Accumulate on the stock.Results in line with expectations: Alembic Pharmaceuticals posted numbers in linewith our expectations for 1QFY2014. The sales came in at `426cr, registering a

growth of 16.4% yoy, but a tad lower than our expectation of `434cr. The growth

was led by the exports, which grew by 41.5% yoy, contributing around 43% of the

overall sales of the company. The domestic market on the other hand grew

by only 6.0% yoy. In spite of the same the OPM, came in at 16.7% vs our

expectation of 15.7%, mainly on back of gross margin expansion, which came in

at 59.5% vs 52.3% in 1QFY2013, on back of an improved sales mix. The

formulations contributed around 75% to the sales mix in 1QFY2014 vs 68% in

1QFY2013. The net profit come in at `46.6cr vs our expectation of `46.4cr,

registering a growth of 51.3% yoy.

Outlook and valuation: Alembics growth and profitability profile has improvedpost the restructuring carried out by the Management. Over FY2013-15, we

expect the company to post a CAGR of 15.1% and 25.5% in sales and

net profit respectively. We recommend Accumulate on the stock.Key Financials (Consolidated)Y/E March (` cr) FY2012 FY2013 FY2014E FY2015ENet Sales 1,444 1,516 1,736 2,008% chg 22.6 5.0 14.5 15.7

Net Profit 130 165 198 260% chg 52.3 26.7 19.9 31.3

EPS (`) 6.9 8.8 10.5 13.8EBITDA Margin (%) 14.1 16.4 17.1 18.9

P/E (x) 22.3 17.6 14.7 11.2

RoE (%) 37.6 36.8 34.4 34.7

RoCE (%) 21.9 29.6 29.9 34.2

P/BV (x) 7.3 5.8 4.5 3.4

EV/Sales (x) 2.2 2.0 1.7 1.4

EV/EBITDA (x) 15.7 12.3 10.1 7.6

Source: Company, Angel Research; Note: CMP as of August 7, 2013

ACCUMULATECMP `154

Target Price `165

Investment Period 12 Months

Stock Info

Sector

171

Bloomberg Code ALPM@IN

Shareholding Pattern (%)

Promoters 74.1

MF / Banks / Indian Fls 2.6

FII / NRIs / OCBs 8.1

Indian Public / Others 15.2

Abs. (%) 3m 1yr 3yr*

Sensex (6.2) 6.0 2.9

Alembic Pharma 21.6 142.0 -

*Since listed on Septeber 20, 2011

2

18,665

5,519

ALEM.BO

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

2,901

0.9

168/58

100,270

Net Debt (`cr)

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Sarabjit Kour Nangra+91- 22- 36357600 [email protected]

Alembic PharmaPerformance Highlights

1QFY2014 Result Update | Pharmaceutical

August 8, 2013


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Alembic Pharma | 1QFY2014 Result Update

August 8, 2013 2

Exhibit 1:1QFY2014 performance (Consolidated)

Y/E March (` cr) 1QFY2014 4QFY2013 % chg(qoq) 1QFY2013 % chg (yoy) FY2013 FY2012 % chg (yoy)Net sales 426 375 13.6 366 16.4 1,516 1,462 3.7Other income 1 2 (62.4) 0 168.2 7 4 56.7Total income 367 367 367 0.0 1,523 1,467Gross profit 253 208 21.9 191 32.5 837 754 10.9

Gross margin 59.5 55.4 52.3 55.2 51.6Operating profit 71 64 10.7 52 35.6 249 216 15.0

Operating margin (%) 16.7 17.1 14.3 16.4 14.8Interest 1 2 (19.7) 6 (74.4) 15 26 (44.4)

Depreciation 10 9 10.3 9 10.0 35 34 3.9

PBT 61 55 9.6 38 58.7 206 161 28.2

Provision for taxation 14 12 20.2 7 90.9 41 31 33.2

PAT before Extra-ordinary item 47 44 6.8 31 51.3 165 130 27.0Extra-Ordinary Expenses 0 0 0 0 0

PAT after Extra-ordinary item & MI 47 44 6.8 31 51.3 165 130 27.0EPS (`) 2.5 2.3 1.6 8.8 6.9

Source: Company, Angel Research

Exhibit 2:1QFY2014 Actual vs Angel estimates

` cr Actual Estimates Variation (%)Net Sales 426 434 (1.9)Other Income 1 0 168.2

Operating Profit 71 68 4.1

Interest 1 2 (18.3)Tax 14 10 33.3

Net Profit 47 46 0.5Source: Company, Angel Research

Sales below expectations: Alembic Pharmaceuticals sales for the quarter came inat `426cr, registering a growth of 16.4% yoy, but a tad lower than our

expectations of `434cr.

The growth was led by exports, which grew by 41.5% yoy, contributing around

43% to the companys overall sales. The domestic markets on the other hand grew

by only 6.0% yoy. The growth in the domestic market was impacted by a dip in APIsales by 33.8% yoy. The domestic formulations on the other hand grew by 12% yoy

during the period. The branded domestic formulations posted a yoy growth of 15%

during the period, while the domestic generic business dipped by 5% during the

period.

The company has filed for 57 abbreviated new drug applications (ANDAs) in the

US year till date and received 26 approvals. During the quarter, the company

received 2 ANDA approvals.


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Exhibit 3:Sales trend

36 6

406

36 9375

426

28 0

30 0

32 0

34 0

36 0

38 0

40 0

42 0

44 0

1 QF Y20 13 2 QFY2 013 3 QFY2 013 4 QFY20 13 1 QFY2 014

(`

cr)


OPM came higher than expected: The OPM came in at 16.7% vs our expectationof 15.7%, mainly on back of expansion in gross margin, which came in at 59.5%

vs 52.3% in 1QFY2013, on back of an improved sales mix. The formulations

contributed around 75% to the sales mix in 1QFY2014 vs 68% in 1QFY2013.

The key expense heads which restricted a significant expansion in the OPM in

comparison to the gross margin expansion are R&D and other expenditure. R&D

expenses as a percentage of sales stood at 5.3% vs 3.8% in 1QFY2013, while

other expenditure grew by 29.4% yoy during the period.

Exhibit 4:OPM Trend

14.3

15.7

18.7 17.1

16.7

10.0

12.0

14.0

16.0

18.0

20.0

1 QFY2 013 2 QF Y20 13 3 QFY20 13 4 QFY20 13 1 QFY2 014

(%)


Net profit above expectation: A higher than expected expansion in OPM along withthe reduction in interest expenditure, aided the PBT to rise by 58.7% yoy. However,

a higher tax expense during the period led the company to post a net profit of

`46.6cr vs our expectations of `46.4cr, registering a growth of 51.3% yoy.


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Exhibit 5:Net profit trend

31

42

48

44

47

0

10

20

30

40

50

60

1 QFY2 013 2 QFY2 013 3QFY2 013 4 QFY20 13 1 QFY2 014

(`

cr)


Concall Highlights

The company has partially commissioned its new Formulation facility. The full

plant is expected to be operational by end of 1HFY2014 which will augment

its capacity from 2.6 billion tablets /capsules to 5 billion. This will help the

company drive its business in International Generics.

The company filed 2 ANDAs in 1QFY2014.

The share of Speciality segment went up from 44% in 1QFY2014 to 50% in

1QFY2013. The segment posted a yoy growth of 26% yoy, while the Acute

segment posted a growth of 3% yoy.

Desvenlafaxine Base Extended Releases US sales are expected to slowly ramp

up in the next few quarters.

EBDITA growth of 20% p.a. achievable on a sustainable basis.

Investment arguments

Focus on chronic segment to drive domestic formulation growth: Alembic has beenrestructuring its business portfolio, which would aid in improving the companysgrowth and operating performance. The companys domestic formulation business

contributed 66% to its total sales in FY2013. The company has a strong field force

of ~3,600 medical representatives. Going forward, the company expects its

domestic formulation business to at least grow in line with the industry growth rate,

before we see an improvement in the share of the high growth chronic segment.

For FY2013-15, we expect the domestic formulation business to grow at 15.0%

CAGR.

Exports- US the key growth driver: On the exports front, the Formulation businesscontributed 20% to the total turnover, with majority of the contribution coming

from Europe and the US. In the US, the company has filed for 57 ANDAs year tilldate and received 26 approvals. The company, going forward, expects to keep its

momentum high in terms of number of filings, by filing around 12-18 ANDAs per

annum. FY2013 would see modest growth in exports as compared to its historical


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high growth rate on account of capacity constraints. However, FY2014 should

witness the growth in exports to resume. For FY2013-15, we expect exports to

register a CAGR of 20.0%.

Outlook and valuation:

Alembics growth and profitability profile has improved post the restructuring

carried out by the Management. Over FY2013-15, we expect the company to post

a CAGR of 15.1% and 25.5% in sales and net profit respectively. We recommendAccumulate on the stock.Exhibit 6:Key assumptions

FY2014E FY2015EDomestic formulation sales growth (%) 15.0 15.0

Exports sales growth (%) 20.0 20.0

R&D as % of sales 4.1 4.1

Operating margins (%) 17.1 18.9

Capex (`cr) 101 100

Net Debt/Equity (x) 0.2 0.0


Exhibit 7:Recommendation summary

Company Reco. CMP Tgt Price Upside FY2015E FY13-15E FY2015E(`) (`) (%) PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)

Alembic Pharma. Accumulate 154 165 8.1 11.2 1.4 7.6 25.5 34.2 34.7Aurobindo Pharma Buy 158 237 50.0 7.7 1.0 6.1 26.4 13.1 18.9Cadila Healthcare Buy 746 929 24.5 16.1 2.0 12.6 20.5 15.7 23.5

Cipla Buy 391 477 21.9 16.4 2.8 12.1 12.1 16.8 16..8

Dr Reddy's Accumulate 2,254 2,535 12.5 17.8 2.7 13.2 10.8 18.3 21.8

Dishman Pharma Buy 43 73 69.7 2.6 0.7 3.1 16.3 11.4 11.0

GSK Pharma* Neutral 2,392 - - 40.1 6.0 25.6 (7.3) 30.6 27.5

Indoco Remedies Buy 63 78 23.8 8.3 0.8 5.5 28.0 15.0 14.4

Ipca labs Neutral 652 - - 14.5 2.2 10.3 29.1 25.1 25.7

Lupin Accumulate 828 904 9.2 19.2 2.6 12.0 21.3 29.0 25.8

Ranbaxy* Buy 282 384 36.2 11.4 0.5 3.7 (2.2) 9.7 19.2

Sanofi India* Neutral 2,411 - - 23.7 2.3 14.4 15.0 14.7 17.1Sun Pharma Neutral 524 - - 26.3 6.9 15.4 8.8 29.4 22.0

Source: Company, Angel Research; Note: *December year end

Background

Alembic Pharmaceuticals is a leading pharmaceutical company in India. The

company is vertically integrated to develop pharmaceutical substances and

intermediates. The company is the market leader in the Macrolides segment of

anti-infective drugs in India. Its manufacturing facilities are located in Vadodara

and Baddi in Himachal Pradesh (for the domestic and non-regulated export

market).The Panelav facility houses the API and formulation manufacturing (both

USFDA approved) plants.


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Profit & Loss Statement (Consolidated)

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015EGross sales 1,192 1,455 1,526 1,746 2,020

Less: Excise duty 14 11 10 10 12Net sales 1,177 1,444 1,516 1,736 2,008

Other operating income 15.6 17.4 3.1 15.7 18.5

Total operating income 1,193 1,461 1,519 1,751 2,026% chg - 22.5 4.0 15.3 15.7

Total expenditure 1,035 1,241 1,267 1,439 1,627

Net raw materials 590 708 681 824 953

Other mfg costs 59 63 67 76 88

Personnel 141 168 194 182 161

Other 244 301 326 356 425

EBITDA 142 203 249 296 380% chg - 42.7 22.5 19.1 28.3

(% of Net Sales) 12.1 14.1 16.4 17.1 18.9

Depreciation& amortisation 30 34 35 39 45

Interest & other charges 24 26 15 15 11

Other income 3 0 4 0 0

(% of PBT) 2 0 2 0 0

Share in profit of Associates - - - - -

Recurring PBT 107 161 206 243 324% chg - - - - -

Extraordinary expense/(Inc.) 0 - - - -

PBT (reported) 107 161 206 243 324Tax 21 31 41 45 65

(% of PBT) 20.1 19.2 19.9 18.6 19.9

PAT (reported) 85 130 165 198 260Add: Share of earnings of asso. - - - - -

Less: Minority interest (MI) - - - - -

Prior period items - - - - -

PAT after MI (reported) 85 130 165 198 260ADJ. PAT 85 130 165 198 260% chg - 52.3 26.7 19.9 31.3

(% of Net Sales) 7.2 9.0 10.9 11.4 12.9Basic EPS (`) 4.5 6.9 8.8 10.5 13.8Fully Diluted EPS ( ) 4.5 6.9 8.8 10.5 13.8% chg - 52.3 26.7 19.9 31.3


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Balance Sheet (Consolidated)

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ESOURCES OF FUNDSEquity share capital 37.7 37.7 37.7 37.7 37.7Preference Capital - - - - -

Reserves & surplus 259 357 465 608 813

Shareholders funds 297 395 503 646 850Minority Interest - - - - -Other Long Term Liabilities 11.8 12.3 12.8 12.3 13.3

Long Term Provisions 5.1 5.4 6.1 5.4 6.4

Total loans 328 353 187 187 100

Deferred tax liability 5 10 14 10 10

Total liabilities 647 775 722 860 980APPLICATION OF FUNDSGross block 434 463 572 672 772

Less: acc. depreciation 162 195 228 267 312

Net block 272 268 344 405 460Capital work-in-progress 27 58 32 33 33

Goodwill - - - - -

Long Term Loans and Adv. 7 35 36 35 36

Investments 3.3 3.3 3.3 3.3 3.3

Current assets 535 688 632 852 989Cash 6 47 16 76 92

Loans & advances 114 182 116 226 261

Other 415 459 500 550 636

Current liabilities 197 277 325 469 542

Net current assets 339 411 307 383 447Mis. Exp. not written off - - - - -

Total assets 647 775 722 860 980


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Cash Flow Statement (Consolidated)

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015EProfit before tax 107 161 206 243 324

Depreciation 30 34 35 39 45(Inc)/Dec in Working Capital (49) (11) (78) (84) (56)

Less: Other income - - - - -

Direct taxes paid 19 31 41 45 65

Cash Flow from Operations 69 152 121 153 248(Inc.)/Dec.in Fixed Assets (61) (76) (84) (101) (100)

(Inc.)/Dec. in Investments - - - - -

Other income - - - - -

Cash Flow from Investing (61) (76) (84) (101) (100)Issue of Equity 11 - - - -

Inc./(Dec.) in loans (59) 26 (165) (1) (85)

Dividend Paid (Incl. Tax) (22) (22) (55) (55) (55)

Others 53 91 (39) (34) (85)

Cash Flow from Financing (17) 95 (259) (90) (225)Inc./(Dec.) in Cash (9) 41 (31) 60 16

Opening Cash balances 15 6 47 16 76Closing Cash balances 6 47 16 76 92


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Key Ratios

Y/E March FY2011 FY2012 FY2013 FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 34.1 22.4 17.6 14.7 11.2P/CEPS 25.3 17.8 14.6 12.3 9.6

P/BV 9.8 7.4 5.8 4.5 3.4

Dividend yield (%) 0.6 0.9 1.6 1.6 1.6

EV/Sales 2.8 2.2 2.0 1.7 1.4

EV/EBITDA 22.8 15.8 12.3 10.1 7.6

EV / Total Assets 5.0 4.1 4.2 3.5 3.0

Per Share Data (`)EPS (Basic) 4.5 6.9 8.8 10.5 13.8

EPS (fully diluted) 4.5 6.9 8.8 10.5 13.8

Cash EPS 6.1 8.7 10.6 12.6 16.2

DPS 1.0 1.4 2.5 2.5 2.5

Book Value 15.7 21.0 26.7 34.3 45.1

Dupont AnalysisEBIT margin 9.6 11.7 14.1 14.8 16.7

Tax retention ratio 79.9 80.8 80.1 81.4 80.1

Asset turnover (x) 1.9 2.1 2.1 2.4 2.4

ROIC (Post-tax) 14.2 20.3 23.9 28.4 32.4

Cost of Debt (Post Tax) 5.1 6.2 4.5 6.5 6.4

Leverage (x) 1.1 0.9 0.6 0.3 0.1

Operating ROE 24.2 33.3 34.8 34.0 34.8

Returns (%)ROCE (Pre-tax) 17.4 21.9 29.6 29.9 34.2

Angel ROIC (Pre-tax) 18.3 26.4 31.9 36.1 41.8

ROE 26.3 37.6 36.8 34.4 34.7

Turnover ratios (x)Asset Turnover (Gross Block) 2.1 3.3 2.9 2.8 2.8

Inventory / Sales (days) 66.1 59.7 63.1 64.3 68.9

Receivables (days) 64.0 50.1 51.9 52.9 56.7

Payables (days) 60.1 60.4 72.6 78.0 87.9

WC cycle (ex-cash) (days) 101.7 86.9 78.6 62.3 59.7

Solvency ratios (x)Net debt to equity 1.1 0.8 0.3 0.2 0.0

Net debt to EBITDA 2.3 1.5 0.7 0.4 0.0

Interest Coverage (EBIT / Int.) 4.7 6.5 14.3 17.2 29.2


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Research Team Tel: 022 - 4040 3800 E-mail: [email protected] Website: www.angeltrade.com

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Disclosure of Interest Statement Alembic Pharma

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Alembic Pharma, 1Q FY 2014

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