1QFY2013 Result Update | Pharmaceutical
August 10, 2012
Alembic Pharma
BUY
CMP
`59
Performance Highlights
Target Price
`91
Y/E March (` cr)
1QFY2013 4QFY2012 % chg (qoq)
1QFY2012
% chg (yoy)
Investment Period
12 Months
Net Sales
366
338
8.4
343
6.6
Other Income
0
2
(88.9)
0.8
(72.5)
Stock Info
Operating Profit
52
39
33.2
50.4
3.9
Sector
Pharmaceutical
Interest
6
5
6.7
6.8
(15.2)
Market Cap (` cr)
2,205
Net Profit
31
20
51.6
28
11.9
Net Debt (` cr)
152
Source: Company, Angel Research
Beta
0.6
52 Week High / Low
67/34
Alembic’s 1QFY2013 results have come below expectations. On the sales front,
Avg. Daily Volume
48,382
the company grossed sales of `366cr, registering a revenue growth of 6.6% yoy,
Face Value (`)
2
lower than our expectations of `390cr. On the operating front, the company
BSE Sensex
17,558
posted an OPM of 14.3% vs an expectation of 15.3%. This, along with lower than
Nifty
5,320
expected net sales, lead the net profits to come below expectations at `31cr
Reuters Code
ALEM.BO
(expectation was of `33cr). At the current market price, the stock is trading at an
Bloomberg Code
[email protected]
attractive valuation. Hence, we maintain our Buy view on the stock.
Results below expectations: Alembic reported revenue growth of 6.6% yoy to
Shareholding Pattern (%)
`366cr, mainly driven by the domestic formulation business growing by 14% yoy.
Promoters
74.1
However, the exports segment grew by a mere 1% yoy, impacted by de-growth of
MF / Banks / Indian Fls
2.3
active pharmaceutical ingredient (API) exports (which de-grew by 37% yoy). On
FII / NRIs / OCBs
7.3
the operating front, the company posted an OPM of 14.3% vs expectations of
Indian Public / Others
16.3
15.3%, which along with lower than expected net sales lead to the net profits
coming below expectations at `31cr (vs expectations of `33cr).
Abs. (%)
3m 1yr 3yr
Outlook and valuation: Alembic’s growth and profitability profile has improved
Sensex
6.9
2.5
17.0
post the restructuring carried out by the management. Over FY2012-14, we
Alembic Pharma
13.7
-
-
expect the company to post a CAGR of 13.3% and 14.6% in sales and
Since listed on Septeber 20, 2011
net profit respectively. At the current market price, the stock is trading at attractive
valuations. Hence, we maintain our Buy recommendation on the stock with
a target price of `91.
Key Financials (Consolidated)
Y/E March (` cr)
FY2011
FY2012
FY2013E
FY2014E
Net Sales
1,177
1,444
1,624
1,855
% chg
-
22.6
12.5
14.2
Net Profit
85
130
125
171
% chg
-
52.3
(4.2)
37.2
EPS (`)
4.5
6.9
6.6
9.1
EBITDA Margin (%)
12.1
14.1
14.2
15.6
P/E (x)
13.0
8.5
8.9
6.5
RoE (%)
26.3
37.6
27.9
29.9
RoCE (%)
19.0
25.0
26.2
29.4
P/BV (x)
3.7
2.8
2.2
1.7
Sarabjit Kour Nangra
EV/Sales (x)
1.2
0.9
0.8
0.7
+91- 22- 36357600 - 6806
EV/EBITDA (x)
9.8
6.3
5.6
4.3
[email protected]
Source: Company, Angel Research
Please refer to important disclosures at the end of this report
1
Alembic Pharma | 1QFY2013 Result Update
Exhibit 1: 1QFY2013 performance (Consolidated)
Y/E March (` cr)
1QFY2013 4QFY2012
% chg(qoq) 1QFY2012
% chg (yoy) FY2012 FY2011
% chg (yoy)
Net sales
366
338
8.4
343
6.6
1,457
1,199
21.5
Other income
0
2
(88.9)
1
(72.5)
5
3
54.1
Total income
367
340
344
6.6
1,462
1,202
Gross profit
191
185
3.6
172
11.2
749
609
23.1
Gross margin
52.2
54.7
50.1
51.4
50.8
Operating profit
52
39
33.2
50
3.9
216
157
37.6
Operating margin (%)
14.3
11.6
14.7
14.8
13.1
Interest
6
5
6.7
7
(15.2)
26
24
9.7
Depreciation
9
9
(2.9)
8
5.7
34
30
13.7
PBT
38
27
41.4
35
7.7
161
107
50.9
Provision for taxation
7
7
10.3
8
(7.6)
31
21
43.8
PAT before Extra-ordinary item
31
20
51.6
28
11.9
130
85
52.4
Extra-Ordinary Expenses
0
0
0
0
0
PAT after Extra-ordinary item & MI
31
20.3
51.6
28
11.9
130
85
52.4
EPS (`)
1.6
1.1
1.5
6.9
4.5
Source: Company, Angel Research
Exhibit 2: 1QFY2013 - Actual vs. Angel estimates
` cr
Actual
Estimates
Variation (%)
Net Sales
366
390
(6.1)
Other Income
0
1
(72.5)
Operating Profit
52
60
(12.1)
Interest
6
8
(24.5)
Tax
7
10
(27.6)
Net Profit
31
33
(7.2)
Source: Company, Angel Research
Results below expectations: Alembic reported a revenue growth of 6.6% yoy to
`366cr, mainly driven by the domestic formulation business which grew by 14%.
However, the exports segment grew by a mere 1% yoy with it being impacted by a
de-growth (by 37% yoy) in the export of APIs. The main growth driver was the
domestic business which grew by 10% yoy.
The other exports segments, namely the branded exports and international
generics, de-grew by 33% yoy and 25% yoy respectively. The de-growth in the
international generic formulations was mainly due to price erosion, product mix
and capacity constraint.
The management expects FY2013 to be a strong year for the domestic
formulations business, where the company expects to log in a 12-15% yoy growth,
driven by the chronic segment. The company has filed 49 for abbreviated new
drug applications (ANDAs) in the US year till date and received 20 approvals
(including 2 tentative approvals).
August 10, 2012
2
Alembic Pharma | 1QFY2013 Result Update
Exhibit 3:
440
420
397
400
381
380
366
360
343
341
340
320
300
280
1QFY2012
2QFY2012
3QFY2012
4QFY2012
1QFY2013
Source: Company, Angel Research
OPM came just in line: The gross margins expanded by 214bps, on the back of
higher contribution of domestic formulations. However, on the operating front, the
margins came in at 14.3% vs 15.3% (the expectation), mainly on account of lower
than expected sales.
Exhibit 4:
20.0
18.0
17.8
16.0
15.3
14.3
14.0
14.7
12.0
11.6
10.0
1QFY2012
2QFY2012
3QFY2012
4QFY2012
1QFY2013
Source: Company, Angel Research
Net profit below expectation: While the operating front grew only by 6.8% yoy, the
reduction in the interest expense along with reduced taxes during the period aided
an 11.9% yoy net profit growth. The net profits came in below expectations at
`31cr vs expectations of `33cr.
August 10, 2012
3
Alembic Pharma | 1QFY2013 Result Update
Exhibit 5:
50
44
45
38
40
35
31
30
28
25
20
20
15
10
5
0
1QFY2012
2QFY2012
3QFY2012
4QFY2012
1QFY2013
Source: Company, Angel Research
Concall Highlights
„ For FY2013, the domestic formulation growth is expected to be at 12-15%.
For API exports, growth would be 10-15% yoy in FY2013. International
generics are expected to be muted over the next two to three quarters. Overall,
the management expects the growth in export revenue to be around 15% in
FY2013.
„ The company launched the dermatology division during the quarter with a
field force of 100 people to strengthen its position in the specialty business.
„ The company filed 4 ANDAs in 1QFY2013.
„ R&D Expenses are expected to be around 4% of sales in FY2013.
„ OPM is expected to be around 15% for the next two years.
„ Tax rate for FY2013 would be around 20% of PBT.
„ For FY2013, the management has guided for `100cr of capex, of which `70cr
would be towards the exports formulation plant, which would come on stream
in 4QFY2013.
Investment arguments
Focus on Chronic segment to drive domestic formulation growth: Alembic has
been restructuring its business portfolio, which would aid in improving the
company’s growth and operating performance. The company’s domestic
formulation business contributed 54% to its total sales in FY2012, with ~70% of its
revenue coming from the anti-infective, respiratory, gynaecological and gastro
therapeutic space. The company has a strong field force of ~3,300 medical
representatives. Going forward, the company expects its domestic formulation
business to at least grow in line with the industry growth rate, before the share of
the high growth chronic segment improves from the current levels of ~30%. For
FY2012-14, we expect the domestic formulation business to grow at 14.0% CAGR.
August 10, 2012
4
Alembic Pharma | 1QFY2013 Result Update
Exports- US the key growth driver: On the exports front, the formulation business
contributed 20% to the total turnover, with majority of the contribution coming
from Europe and the US. In the US, the company has filed for 45 ANDAs year till
date and received 20 approvals. The company, going forward, expects to keep its
momentum high in terms of number of filings, by filing around 12-18 ANDAs per
annum. FY2013 would see modest growth in exports as compared to its historical
high growth rate on account of capacity constraints. However, FY2014 should
witness the growth in exports to resume. For FY2012-14, we expect the exports to
register a CAGR of 21.1%.
Outlook and valuation: Alembic’s growth and profitability profile have improved
post the restructuring carried out by the management. Over FY2012-14, we expect
the company to post a CAGR of
13.3% and
14.6% in its sales and
net profit respectively. At the current market price, the stock is trading at an
attractive valuations. Hence, we maintain our Buy recommendation on the stock
with a target price of `91.
Exhibit 6: Key assumptions
FY2013E
FY2014E
Sales growth (%)
12.5
14.2
R&D as % of sales
4.1
4.1
Operating margins (%)
14.2
15.6
Capex (` cr)
112
53
Net Debt/Equity (x)
0.7
0.4
Source: Company, Angel Research
Exhibit 7: Recommendation summary
Company
Reco.
CMP Tgt Price Upside
FY2014E
FY12-14E
FY2014E
(`)
(`)
(%) PE (x) EV/Sales (x)
EV/EBITDA (x)
CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Buy
59
91
55.4
6.5
0.7
4.3
14.6
29.4
29.9
Aurobindo Pharma
Buy
103
156
51.2
8.2
0.9
6.4
61.1
10.4
16.4
Aventis*
Neutral
2,207
-
-
21.1
2.7
17.7
12.0
16.1
17.0
Cadila Healthcare
Accumulate
874
953
9.0
19.0
2.6
13.5
20.5
20.2
26.8
Cipla
Accumulate
350
399
14.0
17.5
2.8
12.6
18.4
16.8
16.6
Dr Reddy's
Accumulate
1,646
1,859
12.9
17.7
2.6
12.3
2.3
15.1
20.8
Dishman Pharma
Accumulate
86
92
6.5
7.6
1.0
5.6
26.6
8.9
10.0
GSK Pharma*
Neutral
2,105
-
-
25.5
5.1
16.4
8.7
38.9
29.0
Indoco Remedies
Buy
56
92
63.3
6.4
0.9
5.0
32.8
15.5
17.0
Ipca labs
Buy
406
475
17.1
11.1
1.6
7.8
29.5
26.1
26.0
Lupin
Accumulate
581
647
11.3
18.6
2.6
13.2
26.7
22.9
24.7
Orchid Chemicals
Buy
107
178
65.8
4.8
0.8
4.7
27.8
11.5
7.9
Ranbaxy*
Neutral
483
-
-
16.2
1.8
11.2
44.8
15.8
28.9
Sun Pharma
Neutral
676
-
-
29.9
4.8
12.6
0.0
22.8
15.6
Source: Company, Angel Research; Note: *December year end
August 10, 2012
5
Alembic Pharma | 1QFY2013 Result Update
Background
Alembic Pharmaceuticals is a leading pharmaceutical company in India. The
company is vertically integrated to develop pharmaceutical substances and
Intermediates. Alembic is the market leader in Macrolides segment of anti-infective
drugs in India. Alembic’s manufacturing facilities are located in Vadodara and
Baddi in Himachal Pradesh (for the domestic and non-regulated export
market).The Panelav facility houses the API and formulation manufacturing (both
US FDA approved) plants.
August 10, 2012
6
Alembic Pharma | 1QFY2013 Result Update
Profit & Loss Statement (Consolidated)
Y/E March (` cr)
FY2011
FY2012
FY2013E
FY2014E
Gross sales
1,192
1,455
1,634
1,866
Less: Excise duty
14
11
10
11
Net sales
1,177
1,444
1,624
1,855
Other operating income
15.6
17.4
16.3
18.9
Total operating income
1,193
1,461
1,640
1,874
% chg
-
22.5
12.2
14.2
Total expenditure
1,035
1,241
1,394
1,566
Net raw materials
590
708
771
881
Other mfg costs
59
63
-
-
Personnel
141
168
189
216
Other
244
301
433
468
EBITDA
142
203
230
289
% chg
42.7
13.4
25.7
(% of Net Sales)
12.1
14.1
14.2
15.6
Depreciation& amortisation
30
34
37
39
Interest & other charges
24
26
31
35
Other income
3
0
0
0
(% of PBT)
2
0
0
0
Share in profit of Associates
-
-
-
-
Recurring PBT
107
161
163
216
% chg
Extraordinary expense/(Inc.)
0
-
-
-
PBT (reported)
107
161
163
216
Tax
21
31
38
45
(% of PBT)
20.1
19.2
23.3
20.8
PAT (reported)
85
130
125
171
Add: Share of earnings of associate
-
-
-
-
Less: Minority interest (MI)
-
-
-
-
Prior period items
-
-
-
-
PAT after MI (reported)
85
130
125
171
ADJ. PAT
85
130
125
171
% chg
-
52.3
(4.2)
37.2
(% of Net Sales)
7.2
9.0
7.7
9.2
Basic EPS (`)
4.5
6.9
6.6
9.1
Fully Diluted EPS (`)
4.5
6.9
6.6
9.1
% chg
-
52.3
(4.2)
37.2
August 10, 2012
7
Alembic Pharma | 1QFY2013 Result Update
Balance Sheet (Consolidated)
Y/E March (` cr)
FY2011
FY2012
FY2013E
FY2014E
SOURCES OF FUNDS
Equity share capital
37.7
37.7
37.7
37.7
Preference Capital
-
-
-
-
Reserves & surplus
259
357
460
609
Shareholders funds
297
395
498
647
Minority Interest
Other Long Term Liabilities
11.8
12.3
12.3
12.3
Long Term Provisions
5.1
5.4
5.4
5.4
Total loans
275
234
234
234
Deferred tax liability
5
10
10
10
Total liabilities
594
657
759
908
APPLICATION OF FUNDS
Gross block
434
441
551
651
Less: acc. depreciation
162
195
233
272
Net block
272
246
319
380
Capital work-in-progress
27
80
80
80
Goodwill
Long Term Loans and Advances
7
35
35
35
Investments
3.3
3.3
3.3
3.3
Current assets
535
688
761
911
Cash
6
47
35
82
Loans & advances
114
182
211
241
Other
415
458
515
588
Current liabilities
249
396
438
501
Net current assets
286
292
322
410
Mis. Exp. not written off
-
-
-
-
Total assets
594
656
759
908
August 10, 2012
8
Alembic Pharma | 1QFY2013 Result Update
Cash Flow Statement (Consolidated)
Y/E March (` cr)
FY2011
FY2012
FY2013E FY2014E
Profit before tax
107
161
163
216
Depreciation
30
34
37
39
(Inc)/Dec in Working Capital
(49)
(77)
(55)
(15)
Less: Other income
-
-
-
-
Direct taxes paid
19
31
38
45
Cash Flow from Operations
69
87
107
195
(Inc.)/Dec.in Fixed Assets
(61)
(76)
(110)
(100)
(Inc.)/Dec. in Investments
-
-
-
-
Other income
-
-
-
-
Cash Flow from Investing
(61)
(76)
(110)
(100)
Issue of Equity
11
-
-
-
Inc./(Dec.) in loans
(59)
(40)
-
-
Dividend Paid (Incl. Tax)
(22)
(22)
(22)
(22)
Others
53
92
13
(26)
Cash Flow from Financing
(17)
30
(9)
(48)
Inc./(Dec.) in Cash
(9)
41
(12)
47
Opening Cash balances
15
6
47
35
Closing Cash balances
6
47
35
82
August 10, 2012
9
Alembic Pharma | 1QFY2013 Result Update
Key Ratios
Y/E March
FY2011
FY2012
FY2013E
FY2014E
Valuation Ratio (x)
P/E (on FDEPS)
13.0
8.5
8.9
6.5
P/CEPS
9.7
6.8
6.9
5.3
P/BV
3.7
2.8
2.2
1.7
Dividend yield (%)
1.7
1.7
2.5
3.4
EV/Sales
1.2
0.9
0.8
0.7
EV/EBITDA
9.8
6.3
5.6
4.3
EV / Total Assets
2.3
2.0
1.7
1.4
Per Share Data (`)
EPS (Basic)
4.5
6.9
6.6
9.1
EPS (fully diluted)
4.5
6.9
6.6
9.1
Cash EPS
6.1
8.7
8.6
11.1
DPS
1.0
1.0
1.5
2.0
Book Value
15.7
21.0
26.4
34.3
Dupont Analysis
EBIT margin
9.6
11.7
11.9
13.5
Tax retention ratio
79.9
80.8
76.7
79.2
Asset turnover (x)
2.0
2.4
2.5
2.4
ROIC (Post-tax)
15.5
23.2
22.4
25.8
Cost of Debt (Post Tax)
5.5
8.3
10.0
11.8
Leverage (x)
0.9
0.7
0.4
0.3
Operating ROE
24.6
33.4
27.8
30.3
Returns (%)
ROCE (Pre-tax)
19.0
25.0
26.2
29.4
Angel ROIC (Pre-tax)
20.1
26.0
27.0
30.7
ROE
26.3
37.6
27.9
29.9
Turnover ratios (x)
Asset Turnover (Gross Block)
2.1
3.3
3.3
3.1
Inventory / Sales (days)
66.1
61.1
63.8
63.4
Receivables (days)
64.0
57.7
61.4
61.0
Payables (days)
60.1
53.2
54.2
53.9
WC cycle (ex-cash) (days)
86
66
59
60
Solvency ratios (x)
Net debt to equity
0.9
0.5
0.4
0.2
Net debt to EBITDA
1.9
0.9
0.9
0.5
Interest Coverage (EBIT / Interest)
4.7
6.5
6.3
7.2
August 10, 2012
10
Alembic Pharma | 1QFY2013 Result Update
Research Team Tel: 022 - 4040 3800
E-mail: [email protected]
Website: www.angeltrade.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
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referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.
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investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
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refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and
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Disclosure of Interest Statement
Alembic Pharma
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
Reduce (-5% to 15%)
Sell (< -15%)
August 10, 2012
11