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Normalisation of operations after one-off driven weak-1H to drive 2H
Everything that could go wrong, did in 1H - FDA issues at 2 units leading to
shutdown to improve processes were aggravated by logistical issues. This was
exacerbated by poor mix & its operating leverage. Normalisation since Nov will
drive production, product-mix & margins. Company is on-track to address FDA
issues. We expect positive free cashflow from next 1H. Other concerns seem
overdone. Cut estimates mainly for current fiscal and TP by 25%. Maintain Buy
1H marred by one-time headwinds with 2H now ‘normalising’
1H was adversely impacted by (a) plant shutdowns to upgrade most facilities post
US FDA (FDA) issues (b) political turbulence in Hyderabad crippling power &
logistics constraining production and driving costs (c) its high operating leverage &
poor mix and (d) INR collapse. Normalisation of production constraints since Nov
will drive 2H. It guides USD 250m+ rev from 3Q against USD 220 in 2Q. Mkt-share
gains & new approvals in US, new markets and CRAMs will be future drivers.
On-track to address FDA issues, while other concerns seem overdone
With 3 units being re-approved by FDA in CY11, APL is confident of getting reapprovals
of another 6 units in this fiscal. It guides for re-approval of Units III & VI
by 4QFY12e & 1QFY13e respectively. Despite headwinds, operational cashflows
of ~INR 2bn in 1H was neutralised by the INR 3bn capex. With a bounce-back in
2H & lower capex in future, we expect free cashflows by 1HFY13e. Though its net
debt (~INR 30bn) & net gearing (130%) have risen, only 15% is due in 18m.
Concerns on promoter pledging due to fall in stock price are overdone as (a) post
margin calls, pledging has increased to 20%, which is amongst the lowest since
Mar’09 (b) promoters have also started raising stake, which in the past (2HFY09)
had coincided with bottoming of the stock price.
Cut estimates by upto 33%, TP by 25% to INR 150/ share, maintain Buy
With poor 1H, we cut FY12 estimates by 33% with modest cuts of upto 16% in
FY13-14e. Cut TP by 25% to INR 150 (11.6x FY12e EPS, 45% discount to sector).
With 65% upside, maintain Buy. Risks: Addressing FDA issues & execution.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Normalisation of operations after one-off driven weak-1H to drive 2H
Everything that could go wrong, did in 1H - FDA issues at 2 units leading to
shutdown to improve processes were aggravated by logistical issues. This was
exacerbated by poor mix & its operating leverage. Normalisation since Nov will
drive production, product-mix & margins. Company is on-track to address FDA
issues. We expect positive free cashflow from next 1H. Other concerns seem
overdone. Cut estimates mainly for current fiscal and TP by 25%. Maintain Buy
1H marred by one-time headwinds with 2H now ‘normalising’
1H was adversely impacted by (a) plant shutdowns to upgrade most facilities post
US FDA (FDA) issues (b) political turbulence in Hyderabad crippling power &
logistics constraining production and driving costs (c) its high operating leverage &
poor mix and (d) INR collapse. Normalisation of production constraints since Nov
will drive 2H. It guides USD 250m+ rev from 3Q against USD 220 in 2Q. Mkt-share
gains & new approvals in US, new markets and CRAMs will be future drivers.
On-track to address FDA issues, while other concerns seem overdone
With 3 units being re-approved by FDA in CY11, APL is confident of getting reapprovals
of another 6 units in this fiscal. It guides for re-approval of Units III & VI
by 4QFY12e & 1QFY13e respectively. Despite headwinds, operational cashflows
of ~INR 2bn in 1H was neutralised by the INR 3bn capex. With a bounce-back in
2H & lower capex in future, we expect free cashflows by 1HFY13e. Though its net
debt (~INR 30bn) & net gearing (130%) have risen, only 15% is due in 18m.
Concerns on promoter pledging due to fall in stock price are overdone as (a) post
margin calls, pledging has increased to 20%, which is amongst the lowest since
Mar’09 (b) promoters have also started raising stake, which in the past (2HFY09)
had coincided with bottoming of the stock price.
Cut estimates by upto 33%, TP by 25% to INR 150/ share, maintain Buy
With poor 1H, we cut FY12 estimates by 33% with modest cuts of upto 16% in
FY13-14e. Cut TP by 25% to INR 150 (11.6x FY12e EPS, 45% discount to sector).
With 65% upside, maintain Buy. Risks: Addressing FDA issues & execution.
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