HOLD Alembic Pharmaceutical: Minimal regulatory risk in the medium term - AnandRathi Institutional Research

Alembic Pharmaceuticals - Minimal regulatory risk in the medium term; Hold

Zero observations by US FDA at API plant inspection. The Alembic Pharma's Panelav API plant was recently (Jun'16) inspected by the US FDA, with zero observations. This follows its Mar'16 inspection of the company's formulations plant. The consequent ANDA approvals implied minor observations. With the API plant now also inspected with zero observations, the regulatory risk for ANDAs pending approval is expected to be minimal. At end-Q4 FY16, Alembic had 29 ANDAs pending approval; it guided to a ramp-up in filings over the next one to two years.

US sales on track, but at a low pace: Alembic Pharma's international generics sales in FY16 grew a steep 170% yoy, partly due to niche opportunities. Competition, however, has increased and prices have eroded. We expect a drop in international generics sales in FY17 and modest yoy growth in FY18 due to the high base of FY16.

Alembic has increased R&D cost for future growth. R&D, as percentage of sales, is expected to be 14-15% in FY17 (9.8% in FY16). The R&D is expected to concentrate on developing products, focusing on dermatologicals and injectables. We expect the benefit to come in FY18-19.

Valuation: At the CMP of Rs. 547, the stock trades at 25.2x FY17e EPS of Rs. 21.7 and 19x FY18e EPS of Rs. 28.8. On the high base of FY16, we expect a modest 4.3% CAGR over FY16-18 in sales, and a 13% compound annual decline in PAT. We have a Hold rating on it due to the limited potential from the current price. However, the US FDA inspection with zero observation is sentiment-positive.

Shares of ALEMBIC PHARMACEUTICALS LTD. was last trading in BSE at Rs.582 as compared to the previous close of Rs. 573.6. The total number of shares traded during the day was 23756 in over 1161 trades.

The stock hit an intraday high of Rs. 590.6 and intraday low of 578.3. The net turnover during the day was Rs. 13867696.

Source : Equity Bulls

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