Alembic Pharma Ltd - Growth Triggers Priced in; Result Update Q4FY15 ::Edelweiss

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We recently interacted with the Alembic Pharmaceuticals (ALPM) management to get a sense of the company’s international generic business and the recent Algerian JV, along with its future growth strategy. While management is confident of revival of the international generic business, we believe dependence on marketing partners will continue to hamper its ability to ramp up market share of future product launches. However, the shift to its own front-end in the US will give the company better control over its marketing strategy, in turn enhancing profitability. In addition, the JV in Algeria is in line with the company’s strategy to expand its branded generics presence in EMs.

ALPM also reported Q4FY15 numbers, which were broadly in line with our estimates. It clocked PAT of INR 70.2 crs vis-à-vis our INR 67.6 crs estimate. The 15.8% and 8.2% surge in domestic and international generic businesses, respectively, came as a positive surprise. Management remains confident of maintaining current margin and estimates it to improve to 23-24% over the next 3-4 years.

Shift of marketing tack, Algerian JV: Potent growth catalysts

ALPM’s growth in FY15 was driven predominantly by steady growth in domestic formulations. However, in FY15 growth in international generics remained subdued due to pricing pressure in its existing basket of products along with recent launches failing to ramp up substantial market share and de-focusing on the low-margin CRAMS business. The company is currently moving away from a partnership-based model to establishing its own front-end presence in the US, which is likely to improve its supply chain efficiency and support future growth. In addition, its recent investment in the lucrative Algerian market presents an opportunity to enhance revenue share from the high-margin branded generic business.

New launches and prudent investments to spur international generic business

The company continued to outperform the market in domestic formulations segment, with acute and specialty segments surging at 11% and 22%, respectively, during the quarter. The international generic business, however, continued to consolidate and indicated signs of getting back on track with QoQ growth of 10.9% and YoY growth of 8.2%. ALPM remains confident of a better show in the international generic business going ahead backed by a few critical new product launches and market share ramp up in recent launches. The company continues to invest for future growth and remains committed to improving its margin to 23-24% over the next three years riding improving product mix in both domestic formulation and international generic businesses.

LINK
https://www.edelweiss.in/research/Alembic-Pharma-Ltd--Growth-Triggers-Priced-in;-Result-Update-Q4FY15/10005882.html