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Alembic reported strong set of numbers for 3QFY2011 driven by its domestic
formulation segment and restructuring of the business that has shown results for
the second consecutive quarter, evident through the encouraging numbers. The
company expects to list Alembic Pharma by March 2011. We upgrade our Target
Price to `92 and hence recommend a Buy.
Revenue beats estimates, led by domestic segment surprises: Alembic reported
strong 21.6% yoy growth in revenues at `365cr (`300cr). The domestic
formulation business grew by a strong 20% during the quarter. Exports were
however, subdued during the quarter at `116cr (`112cr), up a mere 3.3%
impacted by the API segment. Alembic reported OPM of 15.9% (10.3%) yoy on
account of higher contribution from the high-margin domestic formulations
business. Net profit stood at `30.8cr (`13.5cr) driven by the better-than-expected
revenue growth for the quarter.
Outlook and Valuation: To factor in the encouraging growth and visibility post the
restructuring exercise undertaken by the company which has started showing
results, we have revised our estimates upwards along with the revision of the
target price. We have valued Alembic on SOTP basis wherein we have valued
Alembic Pharma at `62/share, Alembic’s 30% stake in Alembic Pharma fetches
`15/share and the loss-making API business fetches `4/share. We have
conservatively valued the land asset of 70 acres at `500/sq. ft resulting in
`11/share. Thus, our revised Target Price works out to `92 (`74) and hence we
recommend a Buy
Revenue beats estimates, led by domestic segment surprises: Alembic reported
strong 21.6% yoy growth in revenues at `365cr (`300cr) higher than our estimate
of `321cr, driven by the domestic formulation business, which registered 20% yoy
growth for the quarter to `184cr (`153.5cr). We expect momentum in the
company’s domestic formulation business to continue going ahead too as the
restructuring exercise is now showing positive results. Overall formulations segment
recorded stellar growth of 34% to `251cr (`187.5cr), contributing 67% to total
revenues. The API segment recorded single-digit growth of 5% to `118cr (`113cr),
contributing 32% to the total revenues of the quarter.
OPM impacted by higher contribution from domestic API business: Alembic
reported OPM of 15.9% (10.3%) led by the strong growth in the high-margin
formulation business.
Other takeaways
The company is awaiting approval of its scheme of re-arrangement from the
high court of Gujarat. It however, expects to list Alembic Pharma by March
2011.
The chronic segment contributes 40% of the domestic portfolio of the
company.
Management indicated the company currently has 2,700 medical
representatives (MR’s) in the ratio of 70:30 for the acute and chronic
segments. It expects to add ~600 MR’s next year.
Alembic has commercialized 7 products in the US market and filed for one
during the quarter. During FY2011-12, it expects to launch another 2-3
products in the US.
Recommendation rationale
De-merger to unlock value: Alembic has announced de-merger of its pharma
business (comprises its domestic formulation, international generic and API
businesses) into a separate company named Alembic Pharma. With this, Alembic
plans to insulate its pharma business from the high loss-making Pen-G business
(API facility at Vadodara). Alembic also plans to develop its 70 acre land asset.
Management’s decision to de-merge the relatively high-margin pharma business is
a positive as it will allow the two companies to focus on their respective core
businesses, insulate the pharma business from the loss-making Pen-G business
(loss of `24.2cr in FY2010), which could attract a distinct set of investors for the
different businesses and potentially unlock value of the 70 acre land bank at
Vadodara.
Alembic Pharma profitability and return ratios to improve: The domestic
formulation business of Alembic Pharma contributed 57% of total sales in FY2010,
with 75% of its revenues coming from the anti-infective, respiratory, gynaecological
and gastro therapeutic space. The company has a strong field force of 2,700
MR’s. On the export front, the formulation business contributed 14% to the total
turnover with majority of the contribution coming from Europe and US. In the US,
the company has filed for 31 ANDAs and received 9 approvals. The international
API business contributes 28% to total turnover.
Going forward, the company expects its domestic formulation business to grow at
higher pace and revenues from the US generic market are expected to scale up on
the back of product approvals. On the OPM front, we expect Alembic Pharma's
margins to improve from 9.9% to 15.0% by FY2012 with productivity of the field
force improving going ahead. The company plans to reduce debt (currently at
`339cr) going ahead, as it does not foresee any major capital expenditure
requirements except the normal capex. Hence, it would be utilising its operating
cash flows to repay debt.
Outlook and Valuation
To factor in the encouraging growth and visibility post the restructuring exercise
undertaken by the company which has started showing results, we have revised
our estimates upwards along with the revision of the target price. We have valued
Alembic on SOTP basis wherein we have valued Alembic Pharma at `62/share,
Alembic’s 30% stake in Alembic Pharma fetches `15/share and the loss-making
API business fetches `4/share. We have conservatively valued the land asset of 70
acres at `500/sq. ft resulting in `11/share. Our revised Target Price works out to
`92 (`74) and hence we recommend a Buy.
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Alembic – 3QFY2011 Result Update
Angel Broking recommends a Buy on Alembic with a revised Target Price of Rs. 92.
Alembic reported strong set of numbers for 3QFY2011 driven by its domestic
formulation segment and restructuring of the business that has shown results for
the second consecutive quarter, evident through the encouraging numbers. The
company expects to list Alembic Pharma by March 2011. We upgrade our Target
Price to `92 and hence recommend a Buy.
Revenue beats estimates, led by domestic segment surprises: Alembic reported
strong 21.6% yoy growth in revenues at `365cr (`300cr). The domestic
formulation business grew by a strong 20% during the quarter. Exports were
however, subdued during the quarter at `116cr (`112cr), up a mere 3.3%
impacted by the API segment. Alembic reported OPM of 15.9% (10.3%) yoy on
account of higher contribution from the high-margin domestic formulations
business. Net profit stood at `30.8cr (`13.5cr) driven by the better-than-expected
revenue growth for the quarter.
Outlook and Valuation: To factor in the encouraging growth and visibility post the
restructuring exercise undertaken by the company which has started showing
results, we have revised our estimates upwards along with the revision of the
target price. We have valued Alembic on SOTP basis wherein we have valued
Alembic Pharma at `62/share, Alembic’s 30% stake in Alembic Pharma fetches
`15/share and the loss-making API business fetches `4/share. We have
conservatively valued the land asset of 70 acres at `500/sq. ft resulting in
`11/share. Thus, our revised Target Price works out to `92 (`74) and hence we
recommend a Buy
Revenue beats estimates, led by domestic segment surprises: Alembic reported
strong 21.6% yoy growth in revenues at `365cr (`300cr) higher than our estimate
of `321cr, driven by the domestic formulation business, which registered 20% yoy
growth for the quarter to `184cr (`153.5cr). We expect momentum in the
company’s domestic formulation business to continue going ahead too as the
restructuring exercise is now showing positive results. Overall formulations segment
recorded stellar growth of 34% to `251cr (`187.5cr), contributing 67% to total
revenues. The API segment recorded single-digit growth of 5% to `118cr (`113cr),
contributing 32% to the total revenues of the quarter.
Exports were however, subdued during the quarter with sales coming in at `116cr
(`112cr), up by a mere 3.3% impacted by the API segment. API exports de-grew by
37.2% yoy to `49cr (`78cr). However, formulation export sales grew by a healthy
97% to `67cr (`34cr) driven by the regulated markets. The cumulative ANDA
filings stand at 32, cumulative DMFs at 43 with 1 ANDA and 4 new DMFs filed
during the quarter. Cumulative approvals stand at 14.
OPM impacted by higher contribution from domestic API business: Alembic
reported OPM of 15.9% (10.3%) led by the strong growth in the high-margin
formulation business.
Other takeaways
The company is awaiting approval of its scheme of re-arrangement from the
high court of Gujarat. It however, expects to list Alembic Pharma by March
2011.
The chronic segment contributes 40% of the domestic portfolio of the
company.
Management indicated the company currently has 2,700 medical
representatives (MR’s) in the ratio of 70:30 for the acute and chronic
segments. It expects to add ~600 MR’s next year.
Alembic has commercialized 7 products in the US market and filed for one
during the quarter. During FY2011-12, it expects to launch another 2-3
products in the US.
Recommendation rationale
De-merger to unlock value: Alembic has announced de-merger of its pharma
business (comprises its domestic formulation, international generic and API
businesses) into a separate company named Alembic Pharma. With this, Alembic
plans to insulate its pharma business from the high loss-making Pen-G business
(API facility at Vadodara). Alembic also plans to develop its 70 acre land asset.
Management’s decision to de-merge the relatively high-margin pharma business is
a positive as it will allow the two companies to focus on their respective core
businesses, insulate the pharma business from the loss-making Pen-G business
(loss of `24.2cr in FY2010), which could attract a distinct set of investors for the
different businesses and potentially unlock value of the 70 acre land bank at
Vadodara.
Alembic Pharma profitability and return ratios to improve: The domestic
formulation business of Alembic Pharma contributed 57% of total sales in FY2010,
with 75% of its revenues coming from the anti-infective, respiratory, gynaecological
and gastro therapeutic space. The company has a strong field force of 2,700
MR’s. On the export front, the formulation business contributed 14% to the total
turnover with majority of the contribution coming from Europe and US. In the US,
the company has filed for 31 ANDAs and received 9 approvals. The international
API business contributes 28% to total turnover.
Going forward, the company expects its domestic formulation business to grow at
higher pace and revenues from the US generic market are expected to scale up on
the back of product approvals. On the OPM front, we expect Alembic Pharma's
margins to improve from 9.9% to 15.0% by FY2012 with productivity of the field
force improving going ahead. The company plans to reduce debt (currently at
`339cr) going ahead, as it does not foresee any major capital expenditure
requirements except the normal capex. Hence, it would be utilising its operating
cash flows to repay debt.
Outlook and Valuation
To factor in the encouraging growth and visibility post the restructuring exercise
undertaken by the company which has started showing results, we have revised
our estimates upwards along with the revision of the target price. We have valued
Alembic on SOTP basis wherein we have valued Alembic Pharma at `62/share,
Alembic’s 30% stake in Alembic Pharma fetches `15/share and the loss-making
API business fetches `4/share. We have conservatively valued the land asset of 70
acres at `500/sq. ft resulting in `11/share. Our revised Target Price works out to
`92 (`74) and hence we recommend a Buy.
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