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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. The restructuring exercise
undertaken by the company has started showing results. 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 12.4% (FY10) to 14.0% by FY2012 with productivity of the
field force improving going ahead.
Demerger to unlock value: Alembic has announced de-merger
of its pharma business into a separate company named Alembic
Pharma insulating it from the high loss-making Pen-G business.
Alembic also plans to develop its 70 acre land asset. Post the
approvals in place, Alembic Pharma would be separately listed.
(Expected by Mar-2011). 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.
Under the arrangement, Alembic shareholders would receive
one equity share of Alembic Pharma in the ratio of 1:1. Post the
de-merger, Alembic Ltd would retain the high loss-making
Pen-G API business (facility is spread across 45 acres of land) at
Vadodara along with the power infrastructure (16MW used for
internal consumption) and land asset (70acre). Regards its land
assets, management plans to develop the 70 acre land bank
though the time-line is still uncertain.
Valuations: 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 we recommend a Buy on the stock.
SOTP Valuation:
Particulars Value Per Share (`)
Alembic Pharma (PE 10x FY2012E EPS) 62
Alembic's 30% stake in Alembic Pharma (20% discount) 15
Alembic API business (EV/Sales @ 0.6x FY2012E Sales) 4
Land bank (70 acre @ Rs2.2cr per acre) 11
SOTP Value 92
Source: Note:*The valuations are based on the assumption that the
company will continue with its loss making API facility at Vadodara.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
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. The restructuring exercise
undertaken by the company has started showing results. 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 12.4% (FY10) to 14.0% by FY2012 with productivity of the
field force improving going ahead.
Demerger to unlock value: Alembic has announced de-merger
of its pharma business into a separate company named Alembic
Pharma insulating it from the high loss-making Pen-G business.
Alembic also plans to develop its 70 acre land asset. Post the
approvals in place, Alembic Pharma would be separately listed.
(Expected by Mar-2011). 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.
Under the arrangement, Alembic shareholders would receive
one equity share of Alembic Pharma in the ratio of 1:1. Post the
de-merger, Alembic Ltd would retain the high loss-making
Pen-G API business (facility is spread across 45 acres of land) at
Vadodara along with the power infrastructure (16MW used for
internal consumption) and land asset (70acre). Regards its land
assets, management plans to develop the 70 acre land bank
though the time-line is still uncertain.
Valuations: 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 we recommend a Buy on the stock.
SOTP Valuation:
Particulars Value Per Share (`)
Alembic Pharma (PE 10x FY2012E EPS) 62
Alembic's 30% stake in Alembic Pharma (20% discount) 15
Alembic API business (EV/Sales @ 0.6x FY2012E Sales) 4
Land bank (70 acre @ Rs2.2cr per acre) 11
SOTP Value 92
Source: Note:*The valuations are based on the assumption that the
company will continue with its loss making API facility at Vadodara.
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