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Recommendations India

Alembic Pharma Q1FY15 results update

July 30, 2014, Wednesday, 07:27 GMT | 03:27 EST | 10:57 IST | 13:27 SGT
Contributed by Nirmal Bang

For the quarter, Alembic Pharma reported sales growth of 23.1% yoy to Rs 463.4 cr, marginally below expectations. EBITDA margins improved by ~285 bps yoy to 19.6%, on the back of lower raw material cost. However, for the current year the management expects margins to be flattish and likely to pick up from FY16E onwards. USFDA inspection is likely to happen this year for its formulations facility.

Key Highlights

- Domestic formulations business grew by 12% yoy in-line with our expectations. The impact of new NPPA list has no impact (just Rs 1-2 cr) on the company. Domestic growth is backed by specialty (up 25% vs acute 4% growth). The company has recently added 400 MRs taking the total MR strength to 3400.

- For the quarter, Exports formulations grew by 40% yoy however declined sequentially as the company has discontinued some low value business and contract manufacturing to focus on the high margin business. Another factor for decline is lower sales in Europe. Management believes this to be base for next quarter as well. The full benefit of new products launched (Telmisartan) would be visible from Q3 onwards.

- For the quarter, API business was flat at Rs 106 cr. We are expecting API division to grow at 5-7% for the full year.

- During the quarter APL filed three ANDAs taking cumulative ANDA filings to 64. It has also got three approvals during the quarter (cumulative approvals 35, including 5 tentative).

- Gross margins has improved by ~453 bps to 64% on the back of (1) higher share of specialty in the domestic business (2) Higher share of formulation in the portfolio (3) Higher share of international revenues

- The company has strong balance sheet with debt equity to 0.13x and ROCE of more than 30%.

Valuation & Recommendation

We have a positive outlook on the stock considering steady growth. The stock has given handsome returns since our initiating coverage (22nd March 2012 @ Rs 43). The stock has re-rated substantially in the past and considering steady growth going forward, strong return rations and healthy balance sheet, we would recommend investors to HOLD on the stock. At 19x PE of FY16E earnings our target price comes to Rs 359.