1QFY2018 Result Update | Pharmaceutical
July 31, 2017
Alembic Pharmaceuticals
ACCUMULATE
CMP
`544
Performance Highlights
Target Price
`600
Y/E March (` cr)
1QFY2018
4QFY2018
% chg (qoq)
1QFY2017
% chg (yoy)
Investment Period
12months
Net Sales
648
737
(12.1)
737
(12.0)
0
2
0.0
1
(71.7)
Stock Info
Other Income
101
134
(24.3)
157
(35.4)
Sector
Pharmaceutical
Operating Profit
1
2
(50.8)
1
(30.5)
10,256
Interest
Market Cap (` cr)
67
93
(28.3)
104
(35.7)
-9
Adj. Net Profit
Net Debt (` cr)
0.3
Source: Company, Angel Research
Beta
709/492
Alembic Pharma posted marginally lower than expected results for 1QFY2018. In
52 Week High / Low
Rupee terms, revenues de-grew by 12.0% yoy to `648cr (`737cr expected) v/s.
Avg. Daily Volume
22,342
`737cr in 1QFY2017. International formulation came in at `282cr v/s. `309cr in
Face Value (`)
2
1QFY2017, a yoy dip of 8.7%. Indian formulation sales came in at `236cr v/s.
BSE Sensex
32,310
`299cr in 1QFY2017, a yoy dip of 21.0%. On the operating front, EBITDA
10,015
Nifty
margin came in at 16.0% (13.8% expected) v/s. 21.3% in 1QFY2017, a dip of
ALEM.BO
Reuters Code
565bps yoy. Thus, PAT came in at `67cr (`62cr expected) v/s. `104cr in
Bloomberg Code
[email protected]
1QFY2017, down 35.7% yoy. We recommend an Accumulate rating.
Results below expectations: In Rupee terms, revenues de-grew by 12.0% yoy to
`648cr (`737cr expected) v/s. `737cr in 1QFY2017. International formulation
Shareholding Pattern (%)
came in at `282cr v/s. `309cr in 1QFY2017, a yoy dip of 8.7%. US formulation
Promoters
72.7
sales were at `211cr during the quarter. Indian formulation sales came in at
MF / Banks / Indian Fls
4.4
`236cr v/s. `299cr in 1QFY2017, a yoy dip of 21.0%. API sales were flat at
FII / NRIs / OCBs
11.1
`130cr v/s. `129cr in 1QFY2017. On the operating front, EBITDA margin came
Indian Public / Others
11.9
in at 16.0% (13.8% expected) v/s. 21.3% in 1QFY2017, a dip of 565bps yoy.
R&D expense was 14.5% of sales v/s. 10.9% of sales in 1QFY2017. Apart from
lower sales, a 36.3% yoy rise in the employee expenses impacted the OPM dip.
Abs. (%)
3m 1yr
3yr
Though the dip was restricted by a 39.1% dip in the other expenses. Thus, PAT
Sensex
8.0
14.5
24.3
came in at `67cr (`62cr expected) v/s. `104cr in 1QFY2017, down 35.7% yoy.
Alembic Pharma
-11.0
-11.3
61.0
Outlook and valuation: Over FY2017-19E, we expect the company to post a
CAGR of 21.6% in sales, while profitability will witness a CAGR of 12.8% 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
3,903
4,584
600
% chg
53.2
(1.4)
25.8
17.4
450
Net Profit
720
403
411
513
300
% chg
154.1
(44.0)
2.0
24.7
150
EPS (`)
38.2
21.4
21.8
27.2
0
EBITDA Margin (%)
31.9
19.7
18.2
19.2
P/E (x)
14.3
25.4
24.9
20.0
RoE (%)
Source: Company, Angel Research
57.9
23.0
19.8
20.6
RoCE (%)
51.0
25.3
22.6
24.3
P/BV (x)
6.4
5.4
4.5
3.8
EV/Sales (x)
Sarabjit Kour Nangra
3.1
3.3
2.6
2.2
EV/EBITDA (x)
+91- 22- 36357600 - 6806
9.9
16.6
14.4
11.7
[email protected]
Source: Company, Angel Research; Note: CMP as of July 28, 2017
Please refer to important disclosures at the end of this report
1
Alembic Pharma | 1QFY2018 Result Update
Exhibit 1: 1QFY2018 performance (Consolidated)
% chg
% chg
% chg
Y/E March (` cr)
1QFY2018
4QFY2017
1QFY2017
FY2017
FY2016
(qoq)
(yoy)
(yoy)
Net sales
648
737
(12.1)
737
(12.0)
3,101
3,145
(1.4)
Other income
0
2
1
(71.7)
6
9
(31.7)
Total income
648
739
-12.3
737
(12.1)
3,108
3,154
Gross profit
466
537
(13.1)
543
(14.2)
2243
2376
(5.6)
Gross margin
71.9
72.8
73.7
72.3
75.5
Operating profit
101
134
(24.3)
157
(35.4)
611
1002
(39.0)
Operating margin (%)
15.6
18.2
21.3
19.7
31.9
Interest
1
2
(50.8)
1
5
4
28.0
Depreciation
22
22
0.0
19
12.7
83
72
15.2
PBT
79
112
(29.7)
137
(42.4)
529
936
(43.5)
Provision for taxation
15
16
(6.1)
33
(53.5)
122
216
(43.4)
PAT before Extra-ordinary item
63
95
(33.5)
104
(38.8)
407
720
(43.5)
(Profit)/Loss of Associate Company
(3)
2
0
4
0
PAT after Extra-ordinary item & MI
67
93
(28.3)
104
(35.7)
403
720
(44.0)
EPS (`)
3.5
4.9
5.5
21.4
38.2
Source: Company, Angel Research
Exhibit 2: 1QFY2018 - Actual vs Angel estimates
(` cr)
Actual
Estimates
Variation (%)
Net Sales
648
737
(12.1)
Other Income
0
1
(87.9)
Operating Profit
101
102
(0.5)
Interest
1
2
(50.6)
Tax
15
17
(6.2)
Net Profit
67
62
8.4
Source: Company, Angel Research
Sales below expectations: Alembic Pharma posted marginally lower than
expected results for 1QFY2018. In Rupee terms, revenues de-grew by 12.0% yoy
to `648cr (`737cr expected) v/s. `737cr in 1QFY2017. International formulation
came in at `282cr v/s. `309cr, a yoy dip of 8.7%. US formulation sales were at
`211cr during the quarter. Indian formulation sales came in at `236cr v/s. `299cr,
a yoy dip of 21.0%. API sales were flat at `130cr v/s. `129cr in 1QFY2017.
In domestic formulation (‘236cr), specialty business, which constituted around 62%
of the domestic sales de-grew by
23.0% yoy, while acute segment, which
constituted around 27% of domestic formulations, dipped by 22%. The Veterinary
segment, which constituted around 11% of domestic formulations, posted a yoy
growth of 9.0%. In International formulation business (‘282cr), US formulation
business (75% of international formulation sales) de-grew by 5% yoy. The Non-US
international formulation sales during the quarter dipped by 17.0%.
International sales during the quarter contributed around 43.5% of sales in
1QFY2018, while Indian branded formulation sales contributed around 36.4% of
sales in 1QFY2018. In terms, of filling, the company has filed 6 products in US,
while 6 products were approved in 1QFY2018.
July 31, 2017
2
Alembic Pharma | 1QFY2018 Result Update
Exhibit 3: Sales trend
1080
872
880
737
770
737
648
680
480
280
1QFY2017 2QFY2017 3QFY2017 4QFY2017 1QFY2018
Source: Company, Angel Research
OPM better than expectation: On the operating front, EBITDA margin came in at
15.6% (13.8% expected) v/s. 21.3% in 1QFY2017, a dip of 565bps qoq. The dip
was mainly on the back of lower gross margins, which came in at 71.9% v/s.
73.7% in 1QFY2017. R&D expense during the quarter was 14.5% of sales v/s.
10.9% of sales in 1QFY2017. Apart from lower sales, a 36.3% yoy rise in the
employee expenses impacted the OPM dip. Though the dip was restricted by a
39.1% dip in the other expenses.
Exhibit 4: OPM Trend (%)
22.0
21.3
21.0
20.3
20.0
19.0
18.8
18.2
18.0
17.0
16.0
15.6
15.0
1QFY2017 2QFY2017 3QFY2017 4QFY2017 1QFY2018
Source: Company, Angel Research
Net profit below expectations: PAT came in at `67cr (`62cr expected) v/s. `104cr
in 1QFY2017, down 35.7% yoy. The tax expenses which dipped by
53.5%
restricted the dip in the net profit to 35.7%, while PBT dipped by 42.4% yoy.
July 31, 2017
3
Alembic Pharma | 1QFY2018 Result Update
Exhibit 5: Net profit trend
200
180
160
119
140
104
120
87
93
100
80
67
60
40
20
0
1QFY2017 2QFY2017 3QFY2017 4QFY2017 1QFY2018
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 onwards.
The company is working on 40 derma projects, of which 10-12 filings to
happen by early FY2019.
Capex for FY2018 to be `500cr.
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 11.0%.
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 ~101 ANDAs till
date and received 58 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
17.5%.
Outlook and valuation: Over FY2017-19E, we expect the company to post a
CAGR of 21.6% in sales, while profitability will be under pressure on the back of
July 31, 2017
4
Alembic Pharma | 1QFY2018 Result Update
higher R&D spend. The Net profit is expected to grow by CAGR of 12.8% yoy
during FY2017-19E. We recommend an Accumulate rating on the stock.
Exhibit 6: Key assumptions
FY2018E
FY2019E
Domestic formulation sales growth (%)
8.0
14.0
Exports sales growth (%)
15.0
20.0
Operating margins (%)
18.6
19.7
Capex (` cr)
500
200
Net Debt/Equity (x)
0.0
0.0
Source: Company, Angel Research
Exhibit 7: Recommendation summary
Reco.
CMP
Tgt Price
Upside
FY2019E
FY17-19E
FY2019E
(`)
(`)
(%) PE (x)
EV/Sales (x)
EV/EBITDA (x)
CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Accumulate
544
600
10.3
20.0
2.2
11.7
12.8
24.3
20.6
Aurobindo Pharma
Accumulate
724
823
13.7
14.1
2.2
9.9
14.2
25.3
22.7
Cadila Healthcare
Sell
545
450
(17.5)
25.6
4.1
20.3
21.0
17.3
22.9
Cipla
Sell
565
461
(18.5)
22.7
2.4
14.7
39.2
11.0
13.2
Dr Reddy's
Neutral
2,462
-
-
20.7
2.4
13.4
27.8
11.3
13.7
Dishman Pharma
Under Review
301
-
-
18.9
1.3
10.1
(6.8)
2.9
2.5
GSK Pharma
Neutral
2,431
-
-
40.8
5.5
30.4
31.7
29.1
26.5
Indoco Remedies
Sell
201
153
(24.0)
15.8
1.5
10.3
23.0
11.0
15.0
Ipca labs
Buy
484
620
28.0
19.2
1.5
9.8
27.9
12.8
11.2
Lupin
Buy
1,063
1,526
43.6
15.3
2.1
8.9
10.4
20.6
17.8
Sanofi India*
Neutral
4,269
-
-
27.8
2.9
17.2
9.2
23.9
25.8
Sun Pharma
Buy
551
712
29.3
17.0
3.2
12.6
(0.5)
15.1
18.8
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.
July 31, 2017
5
Alembic Pharma | 1QFY2018 Result Update
Profit & Loss Statement (Consolidated)
Y/E March (` cr)
FY2015
FY2016
FY2017
FY2018E
FY2019E
Gross sales
2,064
3,181
3,131
3,846
4,514
Less: Excise duty
11
36
29
42
50
Net sales
2,053
3,145
3,101
3,803
4,464
Other operating income
5.7
3.6
3.7
3.7
3.7
Total operating income
2,058
3,149
3,105
3,807
4,468
% chg
10.3
53.0
(1.4)
22.6
17.4
Total expenditure
1,653
2,143
2,490
3,095
3,585
Net raw materials
715
769
858
1,090
1,235
Other mfg costs
90
138
136
185
196
Personnel
307
421
559
671
805
Other
542
814
937
1,149
1,349
EBITDA
400
1,002
611
709
880
% chg
11.7
150.9
(39.0)
16.0
24.1
(% of Net Sales)
19.5
31.9
19.7
18.6
19.7
Depreciation& amortisation
44
72
83
132
157
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
569
713
% chg
16.8
160.2
(43.8)
8.3
25.3
Extraordinary expense/(Inc.)
-
-
-
-
-
PBT (reported)
360
936
525
569
713
Tax
76
216
122
159
200
(% of PBT)
21.2
23.1
23.3
28.0
28.0
PAT (reported)
283
720
403
410
514
Add: Share of earnings of asso.
-
(0)
-
-
-
Less: Minority interest (MI)
-
-
-
-
-
Prior period items
-
-
-
-
-
PAT after MI (reported)
283
720
403
410
514
ADJ. PAT
283
720
403
410
514
% chg
20.0
154.1
(44.0)
1.6
25.3
(% of Net Sales)
13.8
22.9
13.0
10.8
11.5
Basic EPS (`)
15.0
38.2
21.4
21.7
27.2
Fully Diluted EPS (`)
15.0
38.2
21.4
21.7
27.2
% chg
20.0
154.1
(44.0)
1.6
25.3
July 31, 2017
6
Alembic Pharma | 1QFY2018 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
2,219
2,678
Shareholders funds
885
1,601
1,901
2,256
2,715
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
2,563
2,972
APPLICATION OF FUNDS
Gross block
907
1,208
1,636
2,136
2,336
Less: acc. depreciation
313
385
468
600
756
Net block
595
824
1,169
1,537
1,580
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
1,590
2,426
Cash
55
451
160
166
103
Loans & advances
120
409
191
234
908
Other
716
647
970
1,190
1,415
Current liabilities
464
635
599
734
1,205
Net current assets
426
872
723
856
1,221
Mis. Exp. not written off
-
-
-
-
1.0
Total assets
1,177
1,824
2,088
2,563
2,972
July 31, 2017
7
Alembic Pharma | 1QFY2018 Result Update
Cash Flow Statement (Consolidated)
Y/E March (` cr)
FY2015
FY2016
FY2017
FY2018E
FY2019E
Profit before tax
360
936
525
569
713
Depreciation
44
72
83
132
157
(Inc)/Dec in Working Capital
66
191
(218)
(129)
(534)
Less: Other income
-
-
-
-
-
Direct taxes paid
76
216
122
159
200
Cash Flow from Operations
393
982
268
413
136
(Inc.)/Dec.in Fixed Assets
(222)
(301)
(428)
(500)
(200)
(Inc.)/Dec. in Investments
-
-
-
-
-
Other income
-
-
-
-
-
Cash Flow from Investing
(222)
(301)
(428)
(500)
(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)
6
(63)
Opening Cash balances
24
55
451
160
166
Closing Cash balances
55
451
160
166
103
July 31, 2017
8
Alembic Pharma | 1QFY2018 Result Update
Key Ratios
Y/E March
FY2015
FY2016
FY2017
FY2018E
FY2019E
Valuation Ratio (x)
P/E (on FDEPS)
36.2
14.3
25.4
25.0
20.0
P/CEPS
31.3
13.0
21.1
18.9
15.3
P/BV
11.6
6.4
5.4
4.5
3.8
Dividend yield (%)
0.5
0.5
0.5
0.5
0.5
EV/Sales
5.0
3.1
3.3
2.7
2.3
EV/EBITDA
25.9
9.9
16.6
14.5
11.7
EV / Total Assets
8.8
5.4
4.8
4.0
3.5
Per Share Data (`)
EPS (Basic)
15.0
38.2
21.4
21.7
27.2
EPS (fully diluted)
15.0
38.2
21.4
21.7
27.2
Cash EPS
17.4
42.0
25.8
28.7
35.5
DPS
2.5
2.5
2.5
2.5
2.5
Book Value
46.9
84.9
100.9
119.7
144.0
Dupont Analysis
EBIT margin
17.3
29.6
17.0
15.2
16.2
Tax retention ratio
78.8
76.9
76.7
72.0
72.0
Asset turnover (x)
2.2
2.5
1.9
1.8
1.7
ROIC (Post-tax)
29.6
57.4
24.6
19.2
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)
0.0
Operating ROE
33.8
57.6
24.6
19.0
20.1
Returns (%)
ROCE (Pre-tax)
30.2
51.0
25.3
22.5
24.3
Angel ROIC (Pre-tax)
38.7
77.0
32.7
27.0
27.7
ROE
36.3
57.9
23.0
19.7
20.7
Turnover ratios (x)
Asset Turnover (Gross Block)
2.6
3.0
2.2
2.0
2.0
Inventory / Sales (days)
61.5
55.2
70.7
63.5
74.7
Receivables (days)
56.3
41.2
40.4
16.6
20.6
Payables (days)
79.3
84.8
88.9
36.1
45.3
WC cycle (ex-cash) (days)
60.3
45.9
57.8
60.1
73.9
Solvency ratios (x)
Net debt to equity
0.2
(0.2)
(0.0)
0.0
0.0
Net debt to EBITDA
0.5
(0.3)
(0.1)
0.0
0.1
Interest Coverage (EBIT / Int.)
199.5
252.8
103.1
58.8
59.0
July 31, 2017
9
Alembic Pharma | 1QFY2018 Result Update
July 31, 2017
10
Alembic Pharma | 1QFY2018 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with
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,
redistributed or passed on, directly or indirectly.
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)
July 31, 2017
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