Alembic Pharmaceuticals Ltd. - Growth visibility buoyant; getting priced in - IDBI Capital

US Growth to remain strong; to grow at 35-40% CAGR over next 3 years

The Company's international generic business grew by 108% YoY to Rs3.3 bn in 9MFY14 owing to clearing back logs, lower base and favorable currency movement. The management expects its international business to grow at CAGR 35-40% over next 3 years (FY13-FY16E) based on its strong USFDA pipeline (60 ANDA filings) and gradual shift from current partnership model in the US to its own front end model from end-FY15E. The company's existing filings are all in oral dosage only and it's planning to launch at least 6-8 products annually in the US markets. In European market, the company has presence through marketing alliances with local players to distribute its products.

Recovery in domestic market; expects to grow at 15-18%

Despite increased specialty segment contribution, the company's domestic formulation revenue grew by just 11% YoY to Rs7.5 bn in 9MFY14 (compared to 13% CAGR over FY11-13) due to NELM impact. However, the management indicated that the situation has been normalized and they expect to grow at 15-18% annually or at least higher than industry growth. The specialty segment remains a key driver for the company's growth, which now contributes ~50% (compared to 26% in FY08) in total domestic sales. The company also expects acute segment growth to revive, though it is likely to remain in single digit. Apart from domestic market, the company is also gradually increasing its presence in branded emerging markets to fuel growth in long term.

Adding 500 MRs in domestic market

The company has one of the strongest field forces of ~3,000 for doctor reach in domestic branded sales. The company is deepening its focus on the fast growing specialty segment by introducing more divisions within the segment and allocating more resources to them. For that, the company is in the process of further adding 500 representatives in the next 1 quarter.

EBITDA margin improves to 20% over next one year

The company's EBITDA margin in 9MFY14 expanded by 273bps to 19.1% mainly due to better product mix and increased sales in international generic segment. The company believes its margin further is likely to further improve to ~20% over next one year on the back of improvement in product mix and operational leverage.

Outlook and Valuation: HOLD with a revised TP of Rs271

We have marginally increased our revenue projections by 5%/6% for FY15/FY16. Subsequently, our EPS stands revised upwards by 5%/6% for FY15E/16E. The stock currently trades at 18.5x/14.8x on our FY15E/16E earnings. Our TP is thus revised upwards to Rs271 (14x FY16E EPS) from Rs259. We have eliminated NPV Prestiq ER opportunity (earlier valued at Rs4/share) due to negligible market share gained. We continue to like the company's growth outlook and momentum over the next 2-3 years. That said, with the sharp run up in the company's valuation (~41% in last 3 months), we recommend HOLD.

Source : Equity Bulls

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