4QFY2017 Result Update | Pharmaceutical
May 09, 2017
Alembic Pharmaceuticals
ACCUMULATE
CMP
`593
Performance Highlights
Target Price
`648
Y/E March (` cr)
4QFY2017
3QFY2017
% chg (qoq)
4QFY2016
% chg (yoy)
Investment Period
-
Net Sales
737
770
(4.3)
626
17.8
2
1
0.0
4
(45.6)
Sector
Pharmaceutical
Other Income
134
145
(7.3)
142
(5.9)
Market Cap (` cr)
11,181
Operating Profit
Interest
2
1
141.3
1
39.2
Net Debt (` cr)
-9
93
87
7.5
91
2.4
0.7
Adj. Net Profit
Beta
709/518
Source: Company, Angel Research
52 Week High / Low
28,108
Alembic Pharma posted marginally lower than expected results for 4QFY2017. In
Avg. Daily Volume
Rupee terms, revenues grew by 17.8% yoy to `737cr (`770cr expected) v/s
Face Value (`)
2
`626cr in 4QFY2016. In sales terms, the company posted growth on the back of
BSE Sensex
29,859
international formulations, which grew by 44% yoy, while the Indian domestic
Nifty
9,285
formulations grew by 6.0% yoy. On the operating front, EBITDA margin came in
ALEM.BO
Reuters Code
at 18.2% (19.9% expected) v/s 22.7% in 4QFY2016, a dip of 460bps yoy. Thus,
Bloomberg Code
[email protected]
PAT came in at `93cr (`101cr expected) v/s `91.2cr in 4QFY2016, up 2.4% yoy.
We recommend an Accumulate rating.
Shareholding Pattern (%)
Results marginally below expectations: In Rupee terms, revenues grew by 17.8%
Promoters
72.7
yoy to `737cr (`770cr expected) v/s `626cr in 4QFY2016. In sales terms, the
MF / Banks / Indian Fls
4.2
company posted growth on the back of international formulations, which grew by
FII / NRIs / OCBs
11.0
44% yoy, while the Indian domestic formulations grew by 6.0% yoy. API business
Indian Public / Others
12.2
on the other hand posted a yoy growth of 9.0%. On the operating front, EBITDA
margin came in at 18.2% (19.9% expected) v/s 22.7% in 4QFY2016, a dip of
460bps qoq. The dip was mainly on the back of lower gross margins, which came
Abs. (%)
3m 1yr
3yr
in at 72.8% v/s 80.2% in 4QFY2016. Thus, PAT came in at `93cr (`101cr
Sensex
5.0
16.2
33.6
expected) v/s `91.2cr in 4QFY2016, up 2.4% yoy.
Alembic Pharma
6.8
0.7
113.3
Outlook and valuation: Over FY2017-19E, we expect the company to post a
CAGR of 22.5% in sales, while profitability will witness a CAGR of 17.3% yoy. We
maintain our Accumulate rating on the stock.
3-year price chart
Key Financials (Consolidated)
900
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
750
Net Sales
3,145
3,101
3,966
4,656
600
% chg
53.2
(1.4)
27.9
17.4
450
Net Profit
720
403
481
555
300
% chg
154.1
(44.0)
19.4
15.3
150
EPS (`)
38.2
21.4
25.5
29.5
0
EBITDA Margin (%)
31.9
19.7
20.5
20.4
P/E (x)
15.8
28.2
23.6
20.5
RoE (%)
57.9
23.0
22.8
21.5
Source: Company, Angel Research
RoCE (%)
51.0
25.3
25.7
25.3
P/BV (x)
7.1
6.0
4.9
4.0
EV/Sales (x)
3.5
3.6
2.9
2.5
Sarabjit Kour Nangra
EV/EBITDA (x)
11.0
18.4
14.1
12.0
+91- 22- 36357600 - 6806
Source: Company, Angel Research; Note: CMP as of May 5, 2017
[email protected]
Please refer to important disclosures at the end of this report
1
Alembic Pharma | 4QFY2017 Result Update
Exhibit 1: 4QFY2017 performance (Consolidated)
% chg
% chg
% chg
Y/E March (` cr)
4QFY2017
3QFY2017
4QFY2016
FY2017
FY2016
(qoq)
(yoy)
(yoy)
Net sales
737
770
(4.3)
626
17.8
3,101
3,145
(1.4)
Other income
2
1
4
(45.6)
6
9
(31.7)
Total income
739
771
(4.1)
629
17.5
3,108
3,154
Gross profit
537
565
(4.9)
502
7.0
2243
2376
(5.6)
Gross margin
72.8
73.3
80.2
72.3
75.5
Operating profit
134
145
(7.3)
142
(5.9)
611
1002
(39.0)
Operating margin (%)
18.2
18.8
22.7
19.7
31.9
Interest
2
1
141.3
1
5
4
28.0
Depreciation
22
21
3.4
24
(10.5)
83
72
15.2
PBT
112
124
(9.2)
120
(6.6)
529
936
(43.5)
Provision for taxation
16
39
(58.0)
29
(42.3)
122
216
(43.4)
PAT before Extra-ordinary item
95
87
10.2
91
4.4
407
720
(43.5)
(Profit)/Loss of Associate Company
2
0
0
4
0
PAT after Extra-ordinary item & MI
93
87
7.5
91
2.4
403
720
(44.0)
EPS (`)
4.9
4.6
4.8
21.4
33.3
Source: Company, Angel Research
Exhibit 2: 4QFY2017 - Actual vs Angel estimates
(` cr)
Actual
Estimates
Variation (%)
Net Sales
737
770
(4.3)
Other Income
2
1
98.0
Operating Profit
134
153
(12.7)
Interest
2
1
39.2
Tax
16
31
(46.6)
Net Profit
93
101
(8.0)
Source: Company, Angel Research
Sales marginally below expectations: In Rupee terms, revenues grew by 17.8%
yoy to `737cr (`770cr expected) v/s `626cr in 4QFY2016. In sales terms, the
company posted growth on the back of international formulations, which grew by
44% yoy, while the Indian domestic formulations grew by 6.0% yoy. API business
on the other hand posted a yoy growth of 9.0%.
In domestic formulation (‘286cr), specialty business, which constituted around 58%
of the domestic sales grew by 13.0% yoy, while acute segment, which constituted
around 33% of domestic formulations, dipped by 8%. The Veterinary segment,
which constituted around 9% of domestic formulations, posted a yoy growth of
13.0%. In International formulation business (‘200cr), US formulation business
grew by 54% yoy.
International sales during the quarter contributed around 38.6% of sales in
4QFY2017, while Indian branded formulation sales contributed around 38.6% of
sales in 4QFY2017. In terms, of filling, the company has filed 10 products in US,
while 20 products were filled in FY2017.
May 9, 2017
2
Alembic Pharma | 4QFY2017 Result Update
Exhibit 3: Sales trend
1080
872
880
770
737
723
619
680
480
280
4QFY2016 1QFY2017 2QFY2017 3QFY2017 4QFY2017
Source: Company, Angel Research
OPM lower than expectation: On the operating front, EBITDA margin came in at
18.2% (19.9% expected) v/s 22.7% in 4QFY2016, a dip of 460bps qoq. The dip
was mainly on the back of lower gross margins, which came in at 72.8% v/s
80.2% in 4QFY2016. The R&D expenses came in at 15.2% of sales v/s 17.8% of
sales in 4QFY2016. Also, the employee expenses rose by 42.2% yoy.
Exhibit 4: OPM Trend (%)
24.0
22.7
23.0
22.0
21.0
20.3
20.0
18.8
19.0
18.8
18.0
18.2
17.0
16.0
15.0
4QFY2016 1QFY2017 2QFY2017 3QFY2017 4QFY2017
Source: Company, Angel Research
Net profit below expectations: PAT came in at `93cr (`101cr expected) v/s
`91.2cr in 4QFY2016, up 2.4% yoy. While the EBDITA margins came in lower
than expected, the dip in Net profit was kept in check owing to a yoy dip of 42.3%,
in the taxations.
May 9, 2017
3
Alembic Pharma | 4QFY2017 Result Update
Exhibit 5: Net profit trend
200
180
160
140
104
119
120
91
93
100
87
80
60
40
20
0
4QFY2016
1QFY2017
2QFY2017
3QFY2017
4QFY2017
Source: Company, Angel Research
Concall highlights
R&D expenses to be high, as company plans to file 100 ANDA’s over the next
three years.
Oncology injectable filing to start from 2HFY2018. Oncology oral solids and
injectable facilities to be operational by 1HFY2018 end.
General injectable and Derma filings in the US to start from FY2019. The
company is working on 40 derma projects, of which 10-12 filings to happen
by early FY2019.
Capex for FY2017 to be `700cr.
Investment arguments
Focus on chronic segment to drive domestic formulation growth: Alembic
Pharmaceuticals has been restructuring its business portfolio, which would aid in
improving its growth and operating performance. The company’s domestic
formulation business contributed 38% to its total sales in FY2017. The company
has a strong field force of ~3,600 medical representatives. Going forward, the
company expects its domestic formulation business to at least grow in-line with the
industry growth rate, before it sees an improvement in the share of the high growth
chronic segment. For FY2017-19E, we expect the domestic formulation business to
grow at a CAGR of 13.5%.
Exports - US the key growth driver: On the exports front, the formulation business
contributed 30% to the total turnover, with majority of the contribution coming
from Europe and the US. In the US, the company has filed for ~95 ANDAs till date
and received 52 approvals. The company, going forward, expects to keep its
momentum high in terms of number of filings, by filing around 100 ANDAs over
the next three years. For FY2017-19E, we expect exports to register a CAGR of
20.0%, mainly on the back of base effect impact of FY2016 (sales grew by 46%,
due to launch of Abilify).
May 9, 2017
4
Alembic Pharma | 4QFY2017 Result Update
Outlook and valuation: Over FY2017-19E, we expect the company to post a
CAGR of 22.5% in sales, while profitability will be under pressure on the back of
higher R&D spend. The Net profit is expected to grow by CAGR of 17.3% yoy
during FY2017-19E. We recommend an Accumulate rating on the stock.
Exhibit 6: Key assumptions
FY2018E
FY2019E
Domestic formulation sales growth (%)
13.0
14.0
Exports sales growth (%)
20.0
20.0
Operating margins (%)
20.5
20.4
Capex (` cr)
700
200
Net Debt/Equity (x)
0.1
0.0
Source: Company, Angel Research
Exhibit 7: Recommendation summary
Reco.
CMP
Tgt Price
Upside
FY2018E
FY16-18E
FY2018E
(`)
(`)
(%) PE (x)
EV/Sales (x)
EV/EBITDA (x)
CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Accumulate
593
648
9.2
23.2
2.6
12.9
(18.2)
25.7
22.8
Aurobindo Pharma
Buy
590
877
48.7
12.5
2.1
8.8
18.1
22.5
26.1
Cadila Healthcare
Neutral
466
-
-
24.3
3.8
17.6
13.5
23.6
27.1
Cipla
Sell
549
465
(15.2)
22.4
2.5
15.1
14.2
12.2
13.9
Dr Reddy's
Neutral
2,602
-
-
19.9
2.4
10.2
(2.7)
15.3
15.2
Dishman Pharma
Sell
313
143
(54.3)
27.7
3.0
13.1
16.3
13.0
13.5
GSK Pharma
Neutral
2,445
-
-
40.5
6.1
29.8
16.9
37.5
34.5
Indoco Remedies
Accumulate
225
240
6.6
14.1
1.7
9.1
33.2
19.1
20.1
Ipca labs
Accumulate
538
613
14.0
28.0
1.9
12.5
34.8
8.6
9.5
Lupin
Buy
1,251
1,809
44.7
18.0
3.0
11.1
17.2
24.4
20.9
Sanofi India*
Neutral
4,181
-
-
26.6
3.3
19.0
16.8
22.5
26.4
Sun Pharma
Buy
631
847
34.3
17.9
3.7
11.3
26.5
18.9
20.1
Source: Company, Angel Research; Note: *December year end
Company Background
Alembic Pharmaceuticals is a leading pharmaceutical company in India. The
company is vertically integrated to develop pharmaceutical substances and
intermediates. The company is a market leader in the Macrolides segment of
anti-infective drugs in India. Its manufacturing facilities are located in Vadodara
and in Baddi (Himachal Pradesh; for the domestic and non-regulated export
market). The Panelav facility houses the API and formulation manufacturing (both
USFDA approved) plants.
May 9, 2017
5
Alembic Pharma | 4QFY2017 Result Update
Profit & Loss Statement (Consolidated)
Y/E March (` cr)
FY2015
FY2016
FY2017
FY2018E
FY2019E
Gross sales
2,064
3,181
3,131
4,010
4,708
Less: Excise duty
11
36
29
44
52
Net sales
2,053
3,145
3,101
3,966
4,656
Other operating income
5.7
3.6
3.7
3.7
3.7
Total operating income
2,058
3,149
3,105
3,970
4,660
% chg
10.3
53.0
(1.4)
27.8
17.4
Total expenditure
1,653
2,143
2,490
3,151
3,704
Net raw materials
715
769
858
1,097
1,288
Other mfg costs
90
138
136
185
205
Personnel
307
421
559
671
805
Other
542
814
937
1,198
1,407
EBITDA
400
1,002
611
815
951
% chg
11.7
150.9
(39.0)
33.4
16.8
(% of Net Sales)
19.5
31.9
19.7
20.5
20.4
Depreciation& amortisation
44
72
83
139
171
Interest & other charges
2
4
5
10
12
Other income
0
6
2
2
2
(% of PBT)
0
-
-
-
-
Share in profit of Associates
-
-
-
-
-
Recurring PBT
360
936
525
669
771
% chg
16.8
160.2
(43.8)
27.2
15.3
Extraordinary expense/(Inc.)
-
-
-
-
-
PBT (reported)
360
936
525
669
771
Tax
76
216
122
187
216
(% of PBT)
21.2
23.1
23.3
28.0
28.0
PAT (reported)
283
720
403
481
555
Add: Share of earnings of asso.
-
(0)
-
-
-
Less: Minority interest (MI)
-
-
-
-
-
Prior period items
-
-
-
-
-
PAT after MI (reported)
283
720
403
481
555
ADJ. PAT
283
720
403
481
555
% chg
20.0
154.1
(44.0)
19.4
15.3
(% of Net Sales)
13.8
22.9
13.0
12.1
11.9
Basic EPS (`)
15.0
38.2
21.4
25.5
29.5
Fully Diluted EPS (`)
15.0
38.2
21.4
25.5
29.5
% chg
20.0
154.1
(44.0)
19.4
15.3
May 9, 2017
6
Alembic Pharma | 4QFY2017 Result Update
Balance Sheet (Consolidated)
Y/E March (` cr)
FY2015
FY2016
FY2017
FY2018E
FY2019E
SOURCES OF FUNDS
Equity share capital
37.7
37.7
37.7
37.7
37.7
Preference Capital
-
-
-
-
-
Reserves & surplus
847
1,563
1,863
2,290
2,791
Shareholders funds
885
1,601
1,901
2,328
2,829
Minority Interest
Other Long Term Liabilities
15.8
33.9
69.8
69.8
69.8
Long Term Provisions
6.4
7.4
-
-
-
Total loans
239
133
80
200
150
Deferred tax liability
31
50
37
37
37
Total liabilities
1,177
1,824
2,088
2,635
3,085
APPLICATION OF FUNDS
Gross block
907
1,208
1,636
2,336
2,536
Less: acc. depreciation
313
385
468
607
777
Net block
595
824
1,169
1,730
1,759
Capital work-in-progress
-
-
-
-
-
Goodwill
35
44
27
27
27
Long Term Loans and Adv.
118
83
120
120
120
Investments
2.3
2.1
50.2
50.2
50.2
Current assets
891
1,507
1,321
1,500
2,412
Cash
55
451
160
15
28
Loans & advances
120
409
191
245
908
Other
716
647
970
1,241
1,476
Current liabilities
464
635
599
765
1,257
Net current assets
426
872
723
735
1,155
Mis. Exp. not written off
-
-
-
-
1.0
Total assets
1,177
1,824
2,088
2,634
3,085
May 9, 2017
7
Alembic Pharma | 4QFY2017 Result Update
Cash Flow Statement (Consolidated)
Y/E March (` cr)
FY2015
FY2016
FY2017
FY2018E
FY2019E
Profit before tax
360
936
525
669
771
Depreciation
44
72
83
139
171
(Inc)/Dec in Working Capital
66
191
(218)
(311)
(479)
Less: Other income
-
-
-
-
-
Direct taxes paid
76
216
122
187
216
Cash Flow from Operations
393
982
268
309
247
(Inc.)/Dec.in Fixed Assets
(222)
(301)
(428)
(700)
(200)
(Inc.)/Dec. in Investments
-
-
-
-
-
Other income
-
-
-
-
-
Cash Flow from Investing
(222)
(301)
(428)
(700)
(200)
Issue of Equity
-
-
-
-
-
Inc./(Dec.) in loans
164
(87)
(24)
120
(50)
Dividend Paid (Incl. Tax)
(55)
(55)
(55)
(55)
(55)
Others
(250)
(144)
(53)
181
71
Cash Flow from Financing
(141)
(286)
(131)
246
(34)
Inc./(Dec.) in Cash
31
396
(291)
(145)
13
Opening Cash balances
24
55
451
160
15
Closing Cash balances
55
451
160
15
28
May 9, 2017
8
Alembic Pharma | 4QFY2017 Result Update
Key Ratios
Y/E March
FY2015
FY2016
FY2017
FY2018E
FY2019E
Valuation Ratio (x)
P/E (on FDEPS)
39.5
15.5
27.7
23.2
20.1
P/CEPS
34.1
14.1
23.0
18.0
15.4
P/BV
12.6
7.0
5.9
4.8
4.0
Dividend yield (%)
0.4
0.4
0.4
0.4
0.4
EV/Sales
5.5
3.4
3.6
2.9
2.4
EV/EBITDA
28.2
10.8
18.1
13.9
11.8
EV / Total Assets
9.6
5.9
5.3
4.3
3.6
Per Share Data (`)
EPS (Basic)
15.0
38.2
21.4
25.5
29.5
EPS (fully diluted)
15.0
38.2
21.4
25.5
29.5
Cash EPS
17.4
42.0
25.8
32.9
38.5
DPS
2.5
2.5
2.5
2.5
2.5
Book Value
46.9
84.9
100.9
123.5
150.1
Dupont Analysis
EBIT margin
17.3
29.6
17.0
17.0
16.8
Tax retention ratio
78.8
76.9
76.7
72.0
72.0
Asset turnover (x)
2.2
2.5
1.9
1.7
1.6
ROIC (Post-tax)
29.6
57.4
24.6
21.4
19.8
Cost of Debt (Post Tax)
0.9
1.5
3.7
5.0
0.0
Leverage (x)
0.1
0.0
0.0
0.0
0.1
Operating ROE
33.8
57.6
24.6
21.7
21.0
Returns (%)
ROCE (Pre-tax)
30.2
51.0
25.3
25.7
25.3
Angel ROIC (Pre-tax)
38.7
77.0
32.7
30.1
27.8
ROE
36.3
57.9
23.0
22.8
21.5
Turnover ratios (x)
Asset Turnover (Gross Block)
2.6
3.0
2.2
2.0
1.9
Inventory / Sales (days)
61.5
55.2
70.7
59.0
69.7
Receivables (days)
56.3
41.2
40.4
16.3
20.6
Payables (days)
79.3
84.8
88.9
36.3
45.7
WC cycle (ex-cash) (days)
60.3
45.9
57.8
59.0
72.3
Solvency ratios (x)
Net debt to equity
0.2
(0.2)
(0.0)
0.1
0.0
Net debt to EBITDA
0.5
(0.3)
(0.1)
0.2
0.1
Interest Coverage (EBIT / Int.)
199.5
252.8
103.1
68.9
63.7
May 9, 2017
9
Alembic Pharma | 4QFY2017 Result Update
May 9, 2017
10
Alembic Pharma | 4QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
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CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is
a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
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.
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
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
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Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
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 Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
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 (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
May 9, 2017
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