Multi Baggers

Alembic Pharmaceuticals

Company Background

Established in 1907, Alembic Pharmaceuticals Limited is a leading pharma company in India engaged in manufacture of fermentation and chemistry based bulk drugs.

The company is vertically integrated to develop, manufacture and market pharmaceutical products, pharmaceutical substances and intermediates. Alembic is the market leader in the macrolides segment of anti-infective drugs in India. The company’s manufacturing facilities are located at Panelav in Vadodara and Baddi in Himachal Pradesh. Its basket of formulations contain more than 150 products in several forms belonging to diverse therapeutic segments from anti-infective, cough & cold products to cardiovascular and oral anti-diabetics. The manufacturing expertise is available for almost all dosage forms including sterile as well as non sterile products.

Formulations which account for 65% of the total business today has manufacturing facility at three different places; namely Vadodara & Panelav at Gujarat in the west & Baddi at Himachal Pradesh in the north.The plant at Vadodara has the largest formulation capacity in India while the API and formulation manufacturing are undertaken at the Panelav facility. The company is also engaged in power generation through co-generation power plants and wind mills.

Key Financials:

Trading Data

Shareholding Pattern

Standalone Financial Results (Rs in Crores)

Key Q3FY12 highlights:

The company reported revenue growth of 15.5% yoy to Rs 381Cr mainly of back of exports, which grew by 50.4% yoy driven by the API and formulation business which grew by 113% yoy and 11% yoy respectively. However domestic formulation business reported slow growth at 7.9% yoy.

The company posted impressive performance across all its segments as contribution of the chronic segment forming around 35% of domestic formulation sales grew by 20% yoy and international generics to regulated markets grew by 13% yoy.

On the U.S. regulatory filing front, the company reported cumulative ANDA filings of 41 ANDAs in the U.S. with 17 approvals with two ANDA approvals during the quarter.

Operating profit for the quarter grew by 12% qoq on back of lower other expenditure. Other expenses as a percentage of sales reduced at 19.8% in Q3FY12 as compared to 23% in Q2FY12. Operating margin for the quarter stood strong at 15.3%.

Net profit for the quarter came in at Rs 44Cr, up by 16% qoq on back of higher revenue growth and expansions in operating margins.

Strengths

Expanded capacity and restructuring to drive top line

At present API contributes around 25% of overall revenues, however API segment is a low margin and commoditized segment and going forward the company is undertaking restructuring by shifting its focus from API to formulation segment with domestic formulation forming 57% of its total sales. The company has two formulation plants at Baddi and Panelav and is undertaking expansion plans at its Panelav facility by doubling its current capacity of 2.6bn tablets at the plant to 5bn tablets. The expanded facility is expected to be operational by Q3FY12 with potential increment sale from the capacity at Rs 350Cr.

Improvement in profitability and return ratios

On the operating front, the company’s operating margin is expected to improve from current 12% in FY11 to nearly 15% by FY13. Moreover the company looks forward to reduce its debt currently at 339Cr as it has no major capital expenditure except its planned capex.

Strong Product profile

Its brands such as Glycodin, Zeet, Sharkeferrol  are household names and command stable market share. Market has not given enough importance to this

Key Concerns

Export formulation business is contingent upon additional capacities and hence delay in commissioning of these facilities may lead to non achievement of export formulation orders.

Domestic API business declining to due higher competition from Chinese manufacturers.

Outlook & Valuation

Alembic Pharma Limited is a pure pharma play with strong foothold in domestic formulation business and increased focus in regulated markets. Post the restructuring, the company’s growth and profitability profile has improved. Revenues from the international market serve as the next big trigger for the company. Revenues and net profits are expected to post 16% and 30% CAGR over FY11-13. Given the strong secondary numbers posted by the company and better hygiene factors in the domestic space, the company is set on a sustainable growth path. At the CMP of 45, the stock is trading at 6.5/5.3x its FY12/13 EPS  of 6.9 and 8.5 respectively. Hence a BUY rating is recommended with a price target of 65, an upside of nearly 44% in the next 12-15 months time horizon.