Alembic Pharmaceuticals - Strong growth continues; lower costs aid margin - ICICI Securities

Alembic Pharma (Alembic) reported better-than-estimated performance in Q1FY21 with strong growth in ROW and API businesses along with lower R&D and S,G&A expenses. Revenue from India and US businesses were largely inline with estimates. Consolidated revenues grew 41.4% YoY to Rs13.4bn (I-Sec: Rs12.0bn), adjusted profit grew 102.5% YoY to Rs3.0bn (I-Sec: Rs1.9bn) and EBITDA margin improved 670bps YoY to 30.4% (I-Sec: 24.0%). We remain positive on the long-term outlook, considering the expected recovery in India business, increased focus on complex and niche R&D for the US market, and track record of healthy return ratios. However, potential competition in key products in US and commercialisation of new plants may impact earnings growth in medium term. Retain ADD with a revised target price of Rs1,066/share.

- ROW and API businesses drive growth: RoW business witnessed 62.0% YoY growth in revenues on a low base and cessation of impact due to serialisation in EU. API revenue also grew strong 53.5% with strong traction in API supplies for Azithromycin and supplies issues from China. India business revenues declined 5.6% YoY due to lockdown. Segment wise, acute sales dropped 3.3% and specialty therapies declined 6.6%. Sequentially, US revenues grew 3.2% to US$79mn aided by new launches. Management expects 15-20 product launches in the US in FY21, which would aid growth even on the high base of FY20 despite increasing competition in Sartans.

- Lower R&D spend and S,G&A expenses boosts EBITDA margin: EBITDA margin improved 670/330bps YoY/QoQ to 30.4% largely due to lower R&D and S,G&A expenses. R&D spend would increase in the coming quarters while we expect S,G&A to also increase with rising India sales thereby reverting EBITDA margin to 24-25%. Gross margin dropped 370/330bps YoY/QoQ to 74.8% due to change in revenue mix with higher growth in API and ROW markets. Additional costs related to new plants would stabilise EBITDA margin ~24-25% over FY21E-FY22E.

- Outlook: We believe near-term (FY22-23E) earnings performance would be impacted by continuous investments in R&D and additional costs (>Rs3bn annually) when new plants become operational. However, these costs would be absorbed over the medium term as pace of approvals grows and better capacity utilisation. We expect 15.4% revenue and 11.8 EBITDA CAGR over FY20-FY22E.

- Valuations and risks: We raise revenue/EPS estimates by 2-3/7-12% for FY21E-FY22E to factor in higher growth in ROW & API sales and better margins. We maintain our ADD rating with a revised target price of Rs1,066/share based on 22xFY21E EPS (earlier: Rs998). Key downside risks are: continued slowdown in India, regulatory hurdles and delay in plant/product approvals.

Shares of ALEMBIC PHARMACEUTICALS LTD. was last trading in BSE at Rs.999.35 as compared to the previous close of Rs. 994.7. The total number of shares traded during the day was 129208 in over 8964 trades.

The stock hit an intraday high of Rs. 1044.25 and intraday low of 919.75. The net turnover during the day was Rs. 130988148.

Source : Equity Bulls

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