2QFY2012 Result Update | Pharmaceutical
November 2, 2011
Alembic Pharma
BUY
CMP
`44
Performance Highlights
Target Price
`77
Y/E March (` cr)
2QFY2012 1QFY2012
% chg (qoq)
Angel Estimates
Investment Period
-
Net Sales
396
344
15.1
317
Other Income
-
1
(87.5)
1
Stock Info
Operating Profit
60
50
20.1
44
Sector
Pharmaceutical
Interest
7
7
4.6
7
Market Cap (` cr)
822
Net Profit
38.0
28.3
34.5
23.4
Beta
0.5
Source: Company, Angel Research
52 Week High / Low
51/39
Avg. Daily Volume
28,581
Alembic Pharma (Alembic) reported a strong performance for 2QFY2012. The
Face Value (`)
10
company’s growth was driven by exports and the domestic formulation business
BSE Sensex
17,465
(which performed better than others), as restructuring of the business segment has
Nifty
5,258
now started showing results. Alembic reported robust sales growth and
Reuters Code
ALEM.BO
improvement in the OPM. At the CMP, the stock is trading at attractive valuations.
Bloomberg Code
[email protected]
Hence, we maintain our Buy view on the stock.
Results above estimates: Alembic reported strong revenue growth of 23.9% yoy to
`396cr. Although the domestic formulation business grew by just
9.7%, it
Shareholding Pattern (%)
performed well given the slow growth in the industry. However, the main growth
Promoters
74.1
driver was the exports segment, which grew by 51.2% yoy, driven by API and
MF / Banks / Indian Fls
2.7
formulations business. OPM for the quarter came in at
15.3%
(14.6% in
FII / NRIs / OCBs
7.4
1QFY2012). The company recorded net profit of `38cr, primarily driven by
Indian Public / Others
15.8
revenue growth and expansion in OPM.
Outlook and valuation: The company’s growth and profitability profile has
Abs. (%)
3m 1yr 3yr
improved post the restructuring carried out by management. Over FY2011-13,
Sensex
(3.6)
(14.2)
78.4
we expect the company to post a CAGR of 15.4% and 30.6% in sales and
Alembic Pharma
-
-
-
net profit, respectively. At the CMP, the stock is trading at attractive
Since listed on Septeber 20, 2011
valuations. Hence, we maintain our Buy recommendation on the stock with
a target price of `77.
Key Financials (Consolidated)
Y/E March (` cr)
FY2011
FY2012E
FY2013E
Net Sales
1,184
1,370
1,576
% chg
-
15.7
15.0
Net Profit
85
119
146
% chg
-
39.6
22.2
EPS (`)
4.5
6.3
7.7
EBITDA Margin (%)
12.2
14.5
15.0
P/E (x)
9.6
6.9
5.6
RoE (%)
25.7
36.5
37.0
RoCE (%)
16.2
24.3
26.6
P/BV (x)
2.8
2.3
1.9
Sarabjit Kour Nangra
EV/Sales (x)
1.0
0.8
0.7
+91 22 4040 3800 Ext: 343
EV/EBITDA (x)
7.9
5.7
4.8
[email protected]
Source: Company, Angel Research
Please refer to important disclosures at the end of this report
1
Alembic Pharma | 2QFY2012 Result Update
Exhibit 1: 2QFY2012 performance
Y/E March (` cr)
2QFY2012 1QFY2012
% chg (qoq) 1HFY2012
Net sales
396
344
15.1
739
Other income
-
1
(87.5)
1
Total income
396
345
740
Gross profit
202
172
17.3
374
Gross margin
51.0
50.0
50.6
Operating profit
60
50
20.1
111
Operating margin (%)
15.3
14.6
15.0
Interest
7
7
4.6
14
Depreciation
8
8
3.2
17
PBT
45
36
24.5
81
Provision for taxation
7
8
(11.5)
15
PAT before Extra-ordinary item
38
28
34.5
66
Extra-Ordinary Expenses
-
-
-
PAT after Extra-ordinary item & MI
38.0
28.3
34.5
66
EPS (`)
2.0
1.5
3.5
Source: Company, Angel Research
Exhibit 2: 2QFY2012 - Actual vs. Angel estimates
` cr
Actual
Estimates
Variation (%)
Net Sales
396
317
24.8
Other Income
0
1
(87.8)
Operating Profit
60
44
36.3
Interest
7
7
1.1
Tax
7
8
(12.5)
Net Profit
38
23
62.6
Source: Company, Angel Research
Results above estimates: Alembic reported strong revenue growth of 23.9% yoy to
`396cr. Although the domestic formulation business grew by just
9.7%, it
performed well given the slow growth in the industry.
We expect growth momentum of the domestic formulation business to continue
going ahead, as the restructuring exercise undertaken by management is now
showing positive results. During the quarter, the low-margin domestic API
segment’s sales grew strongly by 40.3% yoy to `22cr (` 15.7cr), driven by volume
offtake.
Exports, on the other hand, posted robust growth of 51.2%, driven by robust
growth in API as well formulations, which grew by 49.5% and 52.4%, respectively.
On the US regulatory filing front, the company has cumulative ANDA filings of 41
ANDAs in the US with 15 approvals.
November 2, 2010
2
Alembic Pharma | 2QFY2012 Result Update
OPM impacted by higher contribution from the domestic API business: Alembic
reported OPM of 15.3%, which was higher on a qoq basis mainly on the back of
the domestic formulation business, whose contribution has increased on a qoq
basis (from 50% in 1QFY2012 to 57% in 2QFY2012).
Net profit up 51.2%, driven by revenue growth and expansion in OPM: Alembic
recorded net profit of `38cr, primarily driven by revenue growth and operating
profit (up 43% yoy).
Investment arguments
Restructuring to drive 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 57% to total sales in
FY2011, with 75% of its revenue coming from the anti-infective, respiratory,
gynaecological and gastro therapeutic space. The company has a strong field
force of ~2,700 MRs. On the export front, the formulation business contributed
14% to the total turnover, with majority of the contribution coming from Europe
and the US. In the US, YTD the company has filed for 41 ANDAs and has received
15 approvals. The international API business contributes 28% to the total turnover.
Going forward, the company expects its domestic formulation business to grow at
industry pace. Further, revenue from the US generic market is expected to scale up
on the back of product approvals.
Profitability and return ratios to improve: On the OPM front, we expect Alembic’s
margins to improve from current levels of 12.2% in FY2011 to 15.0% by FY2013,
given the improving productivity of the field force going ahead. The company
plans to reduce debt (currently at `339cr) going ahead, as it does not foresee any
major capital expenditure requirements except the normal capex. Hence, it would
be utilizing its operating cash flows to repay debt. Overall, Alembic has RoE of
over 35%.
Outlook and valuation: The company’s growth and profitability profile has
improved post the restructuring carried out by management. Over FY2011-13, we
expect the company to post a CAGR of 15.4% and 30.6% in its sales and net
profit, respectively. At the CMP, the stock is trading at attractive valuations. Hence,
we maintain our Buy recommendation on the stock with a target price of `77.
November 2, 2010
3
Alembic Pharma | 2QFY2012 Result Update
Exhibit 3: Key assumptions
FY2011E
FY2012E
Domestic Sales Growth (%)
10.3
11.2
Export Sales Growth (%)
9.6
8.6
Growth in Employee Expenses (%)
13.1
10
R&D as % of Sales
4.0
4.0
Operating Margins (%)
12.4
12
Capex (` cr)
38.5
38.6
Net Debt/Equity (x)
0.9
0.7
Source: Company, Angel Research
Exhibit 4: Recommendation summary
Company
Reco
CMP Tgt Price Upside
FY2013E
FY11-13E
FY2013E
(`)
(`)
(%) PE (x) EV/Sales (x) EV/EBITDA (x)
CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Buy
44
77
76.8
5.6
0.4
4.8
30.6
26.6
37.0
Aurobindo Pharma
Buy
129
217
67.8
6.8
1.0
5.5
29.5
13.8
19.0
Aventis*
Sell
2,310
1,937
(16.1)
25.7
3.2
21.2
15.6
15.8
17.1
Cadila Healthcare
Buy
755
1,053
39.5
14.7
2.4
11.6
21.6
28.3
35.2
Cipla
Buy
289
369
27.7
15.7
2.8
13.4
23.8
17.0
18.2
Dr Reddy's
Buy
1,639
1,920
17.1
17.1
3.0
11.7
22.7
17.7
25.2
Dishman Pharma
Buy
51
82
60.0
4.4
1.1
6.0
8.6
7.4
9.2
GSK Pharma*
Neutral
2,096
-
-
24.1
5.5
15.5
14.6
41.0
30.7
Indoco Remedies
Buy
385
658
70.8
5.9
0.8
4.6
25.8
17.6
19.3
Ipca labs
Buy
267
358
34.0
9.7
1.5
6.9
14.8
23.3
24.9
Lupin
Buy
475
593
24.9
16.0
2.6
13.3
24.0
23.9
30.8
Orchid Chemicals
Buy
174
270
55.2
4.7
1.2
5.5
29.6
11.7
23.4
Ranbaxy*
Accu.
512
578
12.9
9.7
1.6
6.7
43.1
26.8
25.9
Sun Pharma
Neutral
508
-
-
21.6
5.4
17.3
15.8
20.2
20.4
Source: Company, Angel Research; Note: *December year end
November 2, 2010
4
Alembic Pharma | 2QFY2012 Result Update
Profit & Loss Statement (Consolidated)
Y/E March (`)
FY2008
FY2009
FY2010
FY2011
FY2012E
FY2013E
Gross sales
1,027
1,134
10,226
1,192
1,388
1,596
Less: Excise duty
23
18
11
8
18
20
Net Sales
1,003
1,116
10,216
1,184
1,370
1,576
Other operating income
-
-
11.3
-
-
-
Total operating income
1,003
1,116
10,227
1,184
1,370
1,576
% chg
44.1
11.2
816.4
-
15.7
15.0
Total Expenditure
858
991
1,026
1,040
1,171
1,339
Net Raw Materials
492
559
569
590
651
748
Other Mfg costs
71
90
78
66
76
88
Personnel
98
132
145
141
164
188
Other
197
210
233
242
280
315
EBITDA
145
125
9,190
144
199
236
% chg
28.7
(13.7)
7236.2
(98.4)
38.1
18.6
(% of Net Sales)
14.5
11.2
90.0
12.2
14.5
15.0
Depreciation& Amortisation
33
38
43
30
39
43
EBIT
112
87
9,147
115
161
194
% chg
34.2
(22.6)
10417.5
(98.7)
39.9
20.6
(% of Net Sales)
11.2
7.8
89.5
9.7
11.7
12.3
Interest & other Charges
33
40
30
26
30
30
Other Income
12
5
4
18
18
18
(% of PBT)
13
10
0
17
12
10
Recurring PBT
91
52
9,133
107
149
182
% chg
3.3
(42.9)
17446.0
(98.8)
39.5
22.2
Extraordinary Expense/(Inc.)
(23)
43
-
-
-
-
PBT (reported)
114
9
9,133
107
149
182
Tax
1.4
(2)
4
21
30
36
(% of PBT)
1.2
-
0.0
20.1
20.0
20.0
PAT (reported)
112
11
9,128
85
119
146
PAT after MI (reported)
112
11
9,128
85
119
146
ADJ. PAT
90
54
9,128
85
119
146
% chg
1.6
(40.1)
16889.4
-
39.6
22.2
(% of Net Sales)
11.2
1.0
89.4
7.2
8.7
9.2
Basic EPS (`)
8.1
0.8
2.9
4.5
6.3
7.7
Fully Diluted EPS (`)
8.1
0.8
2.9
4.5
6.3
7.7
% chg
58.8
(90.3)
271.2
-
39.6
22.2
November 2, 2010
5
Alembic Pharma | 2QFY2012 Result Update
Balance Sheet (Consolidated)
Y/E March (`)
FY2008 FY2009 FY2010
FY2011
FY2012E
FY2013E
SOURCES OF FUNDS
Equity Share Capital
28
27.4
26.7
37.7
37.7
37.7
Reserves& Surplus
314
304
341
259
319
391
Shareholders’ Funds
341
331
368
296.7
356.4
430.2
Total Loans
423
475
421
328
328
328
Deferred Tax Liability
(5)
6
1
5
5
5
Total Liabilities
760
812
790
630
690
763
APPLICATION OF FUNDS
Gross Block
605
682
719
434
484
534
Less: Acc. Depreciation
239
277
317
162
200
243
Net Block
367
405
402
272
283
291
Capital Work-in-Progress
22
7
7
27
7
8
Investments
14
8
12
3.3
3
3
Current Assets
538
594
580
542
643
746
Cash
19
16
7
6
6
15
Loans & Advances
86
127
144
114
137
158
Other
433
451
429
421
500
573
Current liabilities
181
202
211
214
247
284
Net Current Assets
357
392
369
328
396
462
Mis. Exp. not written off
-
-
-
-
-
1.0
Total Assets
760
812
790
630
690
763
Cash Flow Statement (Consolidated)
Y/E March (`)
FY2008 FY2009 FY2010
FY2011
FY2012E
FY2013E
Profit before tax
91
17
44
107
149
182
Depreciation
33
38
43
30
39
43
(Inc)/Dec in Working Capital
(110)
(4)
14
(49)
(68)
(55)
Less: Other income
12
5
4
-
-
-
Direct taxes paid
10
3
5
19
30
36
Cash Flow from Operations
(8)
42
92
69
90
133
(Inc.)/Dec.in Fixed Assets
(65)
(61)
(38)
(63)
(31)
(51)
(Inc.)/Dec. in Investments
(12)
2
(3)
(0)
(0)
-
Other income
12
5
4
-
-
-
Cash Flow from Investing
(64)
(55)
(36)
(63)
(31)
(51)
Issue of Equity
-
-
(0.74)
-
-
-
Inc./(Dec.) in loans
90
4
(54)
(32)
-
-
Dividend Paid (Incl. Tax)
(16)
(24.0)
(9.3)
(50)
(60)
(73)
Others
(135)
30
-
68
-
-
Cash Flow from Financing
(61)
9
(64)
(7)
(60)
(73)
Inc./(Dec.) in Cash
(133)
(3)
(9)
(1)
0
9
Opening Cash balances
152
19
16
7
6
6
Closing Cash balances
19
16
7
6
6
15
November 2, 2010
6
Alembic Pharma | 2QFY2012 Result Update
Key Ratios
Y/E March
FY2008
FY2009 FY2010
FY2011
FY2012E
FY2013E
Valuation Ratio (x)
P/E (on FDEPS)
2.8
28.8
7.8
9.6
6.9
5.6
P/CEPS
2.2
6.4
0.0
7.1
5.2
4.4
P/BV
0.9
0.9
0.8
2.8
2.3
1.9
Dividend yield (%)
6.6
1.8
2.6
3.4
4.3
5.4
EV/Sales
0.7
0.7
0.1
1.0
0.8
0.7
EV/EBITDA
5.0
6.2
0.1
7.9
5.7
4.8
EV / Total Assets
0.9
0.9
0.9
1.8
1.7
1.5
Per Share Data (`)
EPS (Basic)
8.1
0.8
2.9
4.5
6.3
7.7
EPS (fully diluted)
8.1
0.8
2.9
4.5
6.3
7.7
Cash EPS
10.5
3.6
687.0
6.1
8.4
10.0
DPS
1.5
0.4
0.6
1.5
1.9
2.3
Book Value
24.7
24.1
27.5
15.7
18.9
22.8
DuPont Analysis
EBIT margin
11.2
7.8
89.5
9.7
11.7
12.3
Tax retention ratio
(24.1)
-
100.0
79.9
80.0
80.0
Asset turnover (x)
1.5
1.5
13.0
1.7
2.1
2.2
ROIC (Post-tax)
-
-
1,159.3
13.0
19.6
21.6
Cost of Debt (Post Tax)
-
-
6.7
5.5
7.2
7.2
Leverage (x)
0.8
1.3
1.3
1.1
1.0
0.8
Operating ROE
-
-
2,607.5
21.4
32.0
33.4
Returns (%)
ROCE (Pre-tax)
14.8
11.1
1,142.0
16.2
24.3
26.6
Angel ROIC (Pre-tax)
17.6
11.5
1,169.2
16.7
25.2
27.3
ROE
24.7
16.0
2,613.2
25.7
36.5
37.0
Turnover ratios (x)
Asset Turnover (Gross Block)
1.8
1.7
14.6
2.1
3.0
3.1
Inventory / Sales (days)
59
72.1
8.1
71.1
70.8
70.0
Receivables (days)
72
72.5
7.7
72.2
71.9
71.2
Payables (days)
49
56
62
67.4
68.9
68.2
WC cycle (ex-cash) (days)
104
117
13
105
95
97
Solvency ratios (x)
Net debt to equity
1.2
1.4
1.1
1.1
0.9
0.7
Net debt to EBITDA
2.8
3.7
0.0
2.2
1.6
1.3
Interest Coverage (EBIT / Interest)
3.4
2.2
304.4
4.4
5.4
6.6
November 2, 2010
7
Alembic Pharma | 2QFY2012 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
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
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.
Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please
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%)
November 2, 2010
8