Alembic Pharma 4Q FY 2013

7/30/2019 Alembic Pharma 4Q FY 2013

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

Y/E March (` cr) 4QFY2013 3QFY2013 % chg (qoq) 4QFY2012 % chg (yoy)Net Sales 375 369 1.6 341 10.0Other Income 2 4 (59.7) 2 (19.5)

Operating Profit 64 69 (7.0) 39 63.1

Interest 2 4 (52.8) 5 (66.0)

Net Profit 44 48 (9.6) 20 115.0Source: Company, Angel Research

Alembic Pharmaceuticals (Alembic)s 4QFY2013 results have come above our

expectations on the sales front. The company grossed sales of`375cr, registering

a growth of 10.0% yoy, above our expectations of`349cr. On the operating front,

the company posted an OPM of 17.1% vs an expectation of 14.6%. This led the net

profit to come above our expectation at `44cr (expectation was of `19cr). Werecommend a Buy on the stock.Results above expectations: Alembic reported a revenue growth of 10.0% yoy to`375cr, mainly driven by the domestic formulation business which grew by 16.0%

yoy. However, the exports segment grew only by 3% yoy, impacted by de-growth

of API exports. On the domestic front, the sales growth came on back of the API

segment, which grew 30% yoy, while the formulations posted a growth of 12%yoy. Consequently, the OPM came in at 17.0%, much higher than the 14.6%

expected, ie an expansion of 560bp yoy. This aided the adjusted Net Profit to

grow by 115.0% yoy to end the period at`43.7cr.

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 11.6% and 26.1% in sales and

net profit respectively. We maintain our Buy on the stock witha target price of `139.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 130 165 202 261% chg 52.3 26.7 22.1 29.6

EPS (`) 6.9 8.8 10.7 13.9EBITDA Margin (%) 14.1 16.4 17.1 18.9

P/E (x) 16.5 13.0 10.7 8.2

RoE (%) 37.6 36.8 35.0 34.7

RoCE (%) 25.8 31.7 31.5 34.0P/BV (x) 5.4 4.3 3.3 2.5

EV/Sales (x) 1.6 1.5 1.3 1.1

EV/EBITDA (x) 11.4 9.1 7.6 5.6

Source: Company, Angel Research

BUYCMP `114

Target Price `139

Investment Period 12 Months

Stock Info

Sector

125

Bloomberg Code ALPM@IN

Shareholding Pattern (%)

Promoters 74.1

MF / Banks / Indian Fls 2.6

FII / NRIs / OCBs 7.9

Indian Public / Others 15.4

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

Sensex (2.5) 12.6 11.1

Alembic Pharma 45.7 110.4 -

*Since listed on Septeber 20, 2011

2

19,504

5,930

ALEM.BO

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

2,152

0.6

120/48

76,460

Net Debt (`cr)

Face Value (`)

BSE Sensex

Nifty

Reuters Code

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

Alembic PharmaPerformance Highlights

4QFY2013 Result Update | Pharmaceutical

April 30, 2013


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Alembic Pharma | 4QFY2013 Result Update

April 30, 2013 2

Exhibit 1:4QFY2013 performance (Consolidated)

Y/E March (` cr) 4QFY2013 3QFY2013 % chg(qoq) 4QFY2012 % chg (yoy) FY2013 FY2012 % chg (yoy)Net sales 375 369 1.6 341 10.0 1,516 1,462 3.7Other income 2 4 (59.7) 2 (19.5) 7 4 56.7Total income 367 367 343 7.0 1,523 1,467Gross profit 208 218 (4.8) 188 10.7 837 754 10.9

Gross margin 55.4 59.2 55.1 55.2 51.6Operating profit 64 69 (7.0) 39 63.1 249 216 15.0

Operating margin (%) 17.1 18.7 11.5 16.4 14.8Interest 2 4 (52.8) 5 (66.0) 15 26 (44.4)

Depreciation 9 9 (2.4) 9 (3.1) 35 34 3.9

PBT 55 60 (8.2) 27 104.9 206 161 28.2

Provision for taxation 12 12 (2.5) 7 73.9 41 31 33.2

PAT before Extra-ordinary item 44 48 (9.6) 20 115.0 165 130 27.0Extra-Ordinary Expenses 0 0 0 0 0

PAT after Extra-ordinary item & MI 44 48 (9.6) 20 115.0 165 130 27.0EPS (`) 2.3 2.6 1.1 8.8 6.9


Exhibit 2:4QFY2013 Actual vs Angel estimates

` cr Actual Estimates Variation (%)Net Sales 375 349 7.4Other Income 2 2 (21.5)

Operating Profit 64 51 25.6

Interest 2 16 (88.7)Tax 12 7 57.8

Net Profit 44 19 132.4Source: Company, Angel Research

Sales above expectations: Alembic reported a top-line growth of 10.0% yoy to`375cr, mainly on back of domestic markets, which grew by 16% yoy, while

exports grew only by 3% yoy (impacted by capacity constraints). On the domestic

front, the sales growth came on back of the API segment, which grew by 30% yoy,

while formulations posted a growth of 12% yoy.

In the exports segments, branded exports de-grew by 28.0% yoy whileinternational generics grew 54.0% yoy respectively. API exports on the other hand

de-grew by 21% yoy during the quarter.

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

US, year till date, and received 24 approvals.


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Exhibit 3:Sales trend

34 1

36 6

406

36 9375

28 0

30 0

32 0

34 0

36 0

38 0

40 0

42 0

44 0

4 QFY2 012 1QFY2 013 2 QFY2 013 3 QF Y2 013 4QFY2 013

(`cr)


OPM came higher than expected: The gross margins expanded by 34bp to end theperiod at 55.4%. However, the operating margin came in at 17.1% (vs our

expectation of 14.6%), an expansion of 557bp, mainly driven by a decline in R&D

and other expenditure by 0.6% and 15.0% respectively.

Exhibit 4:OPM Trend

11.6

14.3 15.7

18.7

17.1

10.0

12.0

14.0

16.0

18.0

20.0

4 QFY20 12 1QFY2 013 2 QFY2 013 3QFY2 013 4 QFY2 013

(%)


Net profit above expectation: A higher than expected expansion in OPM along withthe reduction in interest expenditure, aided the net profit higher than expected. The

net profits came in above our expectations at`44cr vs our expectation of `18.8cr.


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Exhibit 5:Net profit trend

20

31

42

48

44

0

10

20

30

40

50

60

4 QFY2 012 1 QFY20 13 2 QF Y20 13 3 QFY20 13 4 QFY2 013

(`cr)


Concall highlights

More-than-market growth expected in Domestic Formulation Business, while

the International Generics business is expected to post a CAGR of 30%.

The company filed 2 ANDAs in 4QFY2013.

Share of Speciality segment went up from 45% in 4QFY2012 to 51% in

4QFY2013.

Launch of Dermatology division during the year with 8 products will furtheradd to the basket of specialty products and support growth in future.

A sustainable EBDITA growth of 20% p.a.

Investment arguments

Focus on chronic segment to drive domestic formulation growth: Alembic has beenrestructuring its business portfolio, which would aid in improving its growth and

operating performance. The companys domestic formulation business contributed

66% to total sales in FY2013. The company has a strong field force of ~3,600

medical representatives. Going forward, the company expects its domesticformulation business to at least grow in line with the industry growth rate, before

the share of the high growth chronic segment improves. 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 till

date and received 24 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

high growth rate on account of capacity constraints. However, FY2014 shouldwitness the growth in exports to resume. For FY2013-15, we expect exports to

register a CAGR of 20.0%.


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

the company to post a CAGR of 11.6% and 26.1% in sales and

net profit respectively. We maintain our Buy on the stock witha target price of `139.Exhibit 6:Key assumptions

FY2014E FY2015ESales growth (%) 14.5 15.7

R&D as % of sales 4.1 4.1

Operating margins (%) 17.1 18.9

Capex (`cr) 101 101

Net Debt/Equity (x) 0.2 0.0


Exhibit 7:Recommendation summary

Company Reco. CMP Tgt Price Upside FY2015E FY12-15E FY2015E(`) (`) (%) PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)

Alembic Pharma. Buy 114 139 21.9 8.2 1.1 5.6 26.1 34.0 34.7Aurobindo Pharma Buy 191 264 38.2 9.9 1.2 7.5 58.2 12.0 18.0

Cadila Healthcare Buy 792 962 21.5 16.5 2.0 11.3 14.8 18.5 24.7

Cipla Accumulate 406 463 14.0 17.5 2.7 11.9 17.6 17.4 16..2

Dr Reddy's Neutral 2,024 - - 19.5 2.7 13.1 5.4 15.3 19.6

Dishman Pharma Buy 69 155 200.7 3.3 0.8 3.8 47.9 12.0 13.7

GSK Pharma* Neutral 2,254 - - 26.0 4.9 16.3 5.8 39.9 31.9

Indoco Remedies Buy 63 78 42.5 7.0 0.8 5.4 21.5 14.6 15.8

Ipca labs Buy 509 559 32.9 11.3 1.7 7.9 30.6 26.0 25.3

Lupin Accumulate 702 655 12.9 17.7 2.3 10.8 26.8 28.2 24.7

Ranbaxy* Neutral 452 - - 20.0 1.5 11.7 (15.0) 12.9 18.5

Sanofi India* Neutral 2,555 - - 25.8 2.9 17.4 13.4 12.5 14.8

Sun Pharma Neutral 951 - - 26.8 6.0 14.0 0.2 27.0 19.3

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

Company Background

Alembic Pharmaceuticals is a leading pharmaceutical company in India. The

company is vertically integrated to develop pharmaceutical substances and

intermediates. The company is a 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 11 10

Other income 3 0 4 0 0

(% of PBT) 2 0 2 0 0

Share in profit of Associates - - - - -

Recurring PBT 107 161 206 247 326% chg

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

PBT (reported) 107 161 206 247 326Tax 21 31 41 45 65

(% of PBT) 20.1 19.2 19.9 18.3 19.9

PAT (reported) 85 130 165 202 261Add: Share of earnings of asso. - - - - -

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

Prior period items - - - - -

PAT after MI (reported) 85 130 165 202 261ADJ. PAT 85 130 165 202 261% chg - 52.3 26.7 22.1 29.6

(% of Net Sales) 7.2 9.0 10.9 11.6 13.0Basic EPS (`) 4.5 6.9 8.8 10.7 13.9Fully Diluted EPS ( ) 4.5 6.9 8.8 10.7 13.9% chg - 52.3 26.7 22.1 29.6


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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 259 357 465 612 818

Shareholders funds 297 395 503 649 856Minority 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 275 234 141 141 100

Deferred tax liability 5 10 14 10 10

Total liabilities 594 657 676 817 985APPLICATION OF FUNDSGross block 434 463 549 649 749

Less: acc. depreciation 162 195 230 269 314

Net block 272 268 319 380 435Capital work-in-progress 27 58 58 59 59

Goodwill

Long Term Loans and Adv. 7 35 36 35 36

Investments 3.3 3.3 3.3 3.3 3.3Current assets 535 688 632 809 994

Cash 6 47 16 33 97

Loans & advances 114 182 116 226 261

Other 415 459 500 550 636

Current liabilities 250 395 372 469 542

Net current assets 286 292 261 340 452Mis. Exp. not written off - - - - -

Total assets 594 657 676 817 985


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Cash Flow Statement (Consolidated)

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015EProfit before tax 107 161 206 247 326

Depreciation 30 34 35 39 45(Inc)/Dec in Working Capital (49) (76) (6) (81) (8)

Less: Other income - - - - -

Direct taxes paid 19 31 41 45 65

Cash Flow from Operations 69 87 194 159 298(Inc.)/Dec.in Fixed Assets (61) (76) (85) (101) (100)

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

Other income - - - - -

Cash Flow from Investing (61) (76) (85) (101) (100)Issue of Equity 11 - - - -

Inc./(Dec.) in loans (59) (40) (93) (1) (39)

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

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

Cash Flow from Financing (17) 29 (187) (90) (179)Inc./(Dec.) in Cash (9) 41 (31) 17 64

Opening Cash balances 15 6 47 16 33Closing Cash balances 6 47 16 33 97


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Key Ratios

Y/E March FY2011 FY2012 FY2013 FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 25.1 16.5 13.0 10.7 8.2P/CEPS 18.7 13.1 10.8 8.9 7.0

P/BV 7.2 5.4 4.3 3.3 2.5

Dividend yield (%) 0.9 1.2 2.2 1.8 0.0

EV/Sales 2.1 1.6 1.5 1.3 1.1

EV/EBITDA 17.1 11.4 9.1 7.6 5.6

EV / Total Assets 4.1 3.5 3.3 2.7 2.2

Per Share Data (`)EPS (Basic) 4.5 6.9 8.8 10.7 13.9

EPS (fully diluted) 4.5 6.9 8.8 10.7 13.9

Cash EPS 6.1 8.7 10.6 12.8 16.2

DPS 1.0 1.4 2.5 2.5 2.5

Book Value 15.7 21.0 26.7 34.5 45.4

Dupont AnalysisEBIT margin 9.6 11.7 14.1 14.8 16.7

Tax retention ratio 79.9 80.8 80.1 81.7 80.1

Asset turnover (x) 2.0 2.4 2.4 2.4 2.4

ROIC (Post-tax) 15.5 23.2 27.1 29.4 32.4

Cost of Debt (Post Tax) 5.5 8.3 6.4 6.5 6.4

Leverage (x) 0.9 0.7 0.4 0.2 0.1

Operating ROE 24.6 33.4 34.5 34.1 34.6

Returns (%)ROCE (Pre-tax) 19.0 25.8 31.7 31.5 34.0

Angel ROIC (Pre-tax) 20.1 30.5 37.1 38.8 43.1

ROE 26.3 37.6 36.8 35.0 34.7

Turnover ratios (x)Asset Turnover (Gross Block) 2.1 3.3 3.0 2.9 2.9

Inventory / Sales (days) 66.1 59.7 55.5 52.6 56.8

Receivables (days) 64.0 50.1 46.0 43.5 47.1

Payables (days) 60.1 60.4 55.2 53.3 56.7

WC cycle (ex-cash) (days) 85.4 65.5 58.8 57.5 59.7

Solvency ratios (x)Net debt to equity 0.9 0.5 0.2 0.2 0.0

Net debt to EBITDA 1.9 0.9 0.5 0.4 0.0

Interest Coverage (EBIT / Int.) 4.7 6.5 14.3 22.9 34.8


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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 4Q FY 2013

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