Alembic Pharmaceuticals Ltd - Steady Quarter; Result Update Q2FY15 :: Edelweiss PDF link

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Alembic Pharmaceuticals Ltd.’s (ALPM) topline of INR 545.9 cr was marginally below our estimate of INR 557.9 cr, mainly impacted by lower–than-estimated API sales. The PAT came above our estimate of INR 75.5 cr at INR 77.3 cr, largely owing to improved gross margins and lower employee cost during the quarter. The company continued to grow ahead of the domestic industry growth rate and managed to report some growth in the international generics business as well, albeit on a higher base. As a result, ALPM was able to sustain its overall operating margins at ~19.7%. The management remains confident of maintaining current margins even on a higher marketing spend. We believe that the company’s investments in the US front-end business, its growing presence in other international branded markets and enhanced contribution of the domestic specialty segment would continue to aid further margin expansion.

Domestic business continues to deliver superlative performance

ALPM continued to show good growth traction in the domestic branded business, which expanded by 18% YoY during the quarter. This was supported by 17% YoY and 18% YoY growth in acute and specialty segments, respectively during the quarter. The international generics business reported a growth of 9% YoY, mainly on lower traction in market share of three new products and to some extent due to a higher base of last year. ALPM expects this growth rate in the international generics business to moderate in another quarter on a high base, though it continued to refrain from giving guidance on the same. The normalization of growth in the domestic market and impending niche launches in the US increase growth visibility.

Better mix buoys margins

ALPM’s gross margin performance came in ahead of estimates, with the company benefiting from improved product mix in the domestic market (driven by higher growth and contribution from the specialty segments) and growth in the international generics business. Improved growth in the formulations segment lifted gross margins to 65% from 61% YoY. However, this increase in gross margins didn’t translate into better overall margins on account of higher-than-anticipated marketing cost. Operating margins improved by 54 bps YoY to 19.7% during the quarter, as the domestic formulations business and international generics business continued to show strength. Though the company remains confident of improving the quality of its business going forward on the back of increased investments in R&D, field force etc, it remains non-committal on further increase in margins.  

Expect high double-digit growth in Domestic Branded Market; Margins to sustain at 20%+

ALPM management maintains high double-digit growth in its domestic branded formulation market. On the other hand, it has refrained from giving growth guidance for the international generics business. But, considering the robust growth seen this fiscal in the international business, the company remains confident of further growing this business, albeit on a high base. The company expects at least 25% CAGR in topline over the next three years, with margins sustaining at 20% plus. Further, it has decided to advance its capex by a year, and is investing INR 200 cr on the expansion of all API, domestic & international formulation facilities to support future growth. The company expects to commercialize them in the current fiscal year only. It has already spent ~INR 100 cr on the same till date.

LINK
https://www.edelweiss.in/research/Alembic-Pharmaceuticals-Ltd--Steady-Quarter;-Result-Update-Q2FY15/10005111.html