2QFY2016 Result Update | Pharmaceutical
November 10, 2015
Alembic Pharma
NEUTRAL
CMP
`675
Performance Highlights
Target Price
-
Y/E March (` cr)
2QFY2016 1QFY2016
% chg (qoq) 2QFY2015
% chg (yoy)
Investment Period
-
Net Sales
1,008
583
73.0
546
84.5
Other Income
1
1
1.0
1
0.0
Stock Info
Operating Profit
375
101
271.0
107
251.9
Interest
1
1
17.7
1
(29.8)
Sector
Pharmaceutical
Net Profit
289
70
312.9
77
273.4
Market Cap (` cr)
12,728
Source: Company, Angel Research
Net Debt (` cr)
814
For 2QFY2016, Alembic Pharmaceuticals (Alembic Pharma) posted numbers well
Beta
0.7
ahead of our expectations. It posted an 84.5% yoy growth in sales to end the
52 Week High / Low
792/382
period at `1,008cr V/s `750cr expected. On the operating front, the OPM came
Avg. Daily Volume
36,752
in at 37.2% V/s 27.8% expected and V/s 19.5% in 2QFY2015. R&D expenditure
Face Value (`)
2
during the quarter was 9.4% of sales V/s 13.0% of sales in 2QFY2015. The net
BSE Sensex
26,304
profit consequently came in at `289cr V/s `177.3cr expected and V/s `77.3cr in
Nifty
7,955
2QFY2015, a yoy growth of 273.4%. We maintain our Neutral rating on the
Reuters Code
ALEM.BO
stock, considering the fuller valuations.
Bloomberg Code
[email protected]
Results better than expectations: For 2QFY2016, the company posted numbers
well ahead of our expectations. It posted an 84.5% yoy growth in sales to end the
Shareholding Pattern (%)
period at `1,008cr V/s `750cr expected. This was primarily driven by gAbilify’s
Promoters
74.1
launch in the US. Overall formulations were 84% of sales in 2QFY2016, with
international generic accounting for 45% of sales and Indian branded accounting
MF / Banks / Indian Fls
3.2
for 34% of sales. International generics (`559.3cr) posted a sales growth of 342%
FII / NRIs / OCBs
10.8
yoy. The Indian formulation branded sales (`2,846cr) posted a sales growth of
Indian Public / Others
11.9
3.3% yoy. The API business posted a yoy growth of 43% yoy. On the operating
front, the OPM came in at 37.2% V/s 27.8% expected and V/s 19.5% in
2QFY2015. R&D expenditure during the quarter was 9.4% of sales V/s 13.0% of
Abs. (%)
3m 1yr
3yr
sales in 2QFY2015. The net profit consequently came in at `289cr V/s `177.3cr
Sensex
(7.2)
(5.9)
39.6
expected and V/s `77.3cr in 2QFY2015, a yoy growth of 273.4%.
Alembic Pharma
(7.6)
64.0
888.9
Outlook and valuation: Alembic Pharma’s growth and profitability profile has
improved post the restructuring carried out by the Management. Over FY2015-
3-year price chart
17E, we expect the company to post a CAGR of 23.1% and 26.1% in sales and
900
800
net profit, respectively. We recommend a Neutral rating on the stock.
700
600
Key Financials (Consolidated)
500
Y/E March (` cr)
FY2014
FY2015
FY2016E
FY2017E
400
Net Sales
1,863
2,053
2,658
3,112
300
200
% chg
22.9
10.2
29.5
17.1
100
Net Profit
236
283
463
451
0
2
2
3
3
4
4
4
5
5
% chg
43.0
20.0
63.6
(2.8)
1
1
1
1
1
1
1r
ŧ
r
1
1g
n
-
c
y
v
p
c
a
u
a
J
u
e
a
o
EPS (`)
12.5
15.0
24.6
23.9
A
O M
A
J
D
M
N
EBITDA Margin (%)
19.2
19.5
24.1
20.2
Source: Company, Angel Research
P/E (x)
53.3
44.4
27.1
27.9
RoE (%)
40.0
36.3
42.5
30.2
RoCE (%)
39.9
30.2
39.7
30.3
P/BV (x)
18.6
14.2
9.7
7.4
Sarabjit Kour Nangra
EV/Sales (x)
6.8
6.2
4.7
3.9
+91- 22- 36357600 - 6806
EV/EBITDA (x)
35.2
31.7
19.4
19.5
[email protected]
Source: Company, Angel Research; Note: CMP as of November 5, 2015
Please refer to important disclosures at the end of this report
1
Alembic Pharma | 2QFY2016 Result Update
Exhibit 1: 2QFY2016 performance (Consolidated)
Y/E March (` cr)
2QFY2016
1QFY2016
% chg(qoq) 2QFY2015
% chg (yoy) 1HFY2016 1HFY2015
% chg (yoy)
Net sales
1,008
583
73.0
546
84.5
1,590
1,040
52.9
Other income
1
1
1.0
1
0.0
2
2
8.4
Total income
1,009
584
547
84.4
1,592
1,042
Gross profit
782
369
111.6
357
119.2
1151
665
73.1
Gross margin
77.5
63.4
65.3
72.4
63.9
Operating profit
375
101
271.0
107
251.9
476
202
135.8
Operating margin (%)
37.2
17.4
19.5
29.9
19.4
Interest
1
1
17.7
1
(29.8)
1
2
(15.6)
Depreciation
13
13
2.9
11
22.4
26
22
21.4
PBT
362
89
308.8
96
278.4
451
181
149.5
Provision for taxation
74
19
292.2
18
299.2
92
39
138.4
PAT before Extra-ordinary item
289
70
312.9
77
273.4
359
142
152.8
Extra-Ordinary Expenses
0
0
0
0
0
PAT after Extra-ordinary item & MI
289
70
312.9
77
273.4
359
142
152.8
EPS (`)
15.3
3.7
4.1
19.0
7.5
Source: Company, Angel Research
Exhibit 2: 2QFY2016 - Actual vs Angel estimates
` cr
Actual
Estimates
Variation (%)
Net Sales
1,008
750
34.4
Other Income
1
1
0.0
Operating Profit
375
209
79.8
Interest
1
1
21.7
Tax
74
19
291.2
Net Profit
289
177
63.0
Source: Company, Angel Research
Sales above expectations: The company posted sales of `1,008cr V/s an expected
`750cr and V/s `546cr in 2QFY2015, a yoy growth of 84.5%. The growth was driven
by export generic markets (`559.2cr), which posted a yoy growth of 342%. API sales
(`137.2cr) posted a yoy growth of 42.9%.
In the Indian market, formulation sales (`284.6cr) posted a yoy growth of 3.3%. The
Specialty segment and the Acute segment posted a 21% yoy growth and 9% yoy
decline, respectively. The Indian generic segment (`25cr) posted a yoy de-growth of
22%. The company enjoys a market share of 1.76% in the Indian formulation market.
During 1HFY2016, the acute segment and specialty segment contributed around 62%
and 38%, respectively.
In the export formulation market, generic formulation exports (`559.2cr) posted a yoy
growth of 342%. The export formulation branded market (`11.6cr) posted a yoy dip of
38%.
In the US, the company has 44 ANDAs/NDAs approved in addition to 4 tentative
approvals and 27 pending approval.
November 10, 2015
2
Alembic Pharma | 2QFY2016 Result Update
Exhibit 3: Sales trend
1080
1,008
880
680
582
546
511
502
480
280
2QFY2015
3QFY2015
4QFY2015
1QFY2016
2QFY2016
Source: Company, Angel Research
OPM better than expectation: On the operating front, the OPM came in at 37.2%
V/s 27.8% expected and V/s 19.5% in 2QFY2015. The expansion in the margins
was aided by sales of Abilify in the US. R&D expenditure during the quarter was
9.4% of sales V/s 13.0% of sales in 2QFY2015. Going ahead, the Management
expects R&D expense to stabilize at 6-7% of sales due to increased complexity of
filings.
Exhibit 4: OPM Trend (%)
40.0
37.2
35.0
30.0
25.0
19.5
20.0
17.4
20.1
19.3
15.0
2QFY2015
3QFY2015
4QFY2015
1QFY2016
2QFY2016
Source: Company, Angel Research
Net profit above expectation: The net profit consequently came in at `289cr V/s
`177.3cr expected and V/s `77.3cr in 2QFY2015, a yoy growth of 273.4%.
November 10, 2015
3
Alembic Pharma | 2QFY2016 Result Update
Exhibit 5: Net profit trend
300
289
250
200
150
77
71
100
70
70
50
0
2QFY2015
3QFY2015
4QFY2015
1QFY2016
2QFY2016
Source: Company, Angel Research
Concall highlights
The company has maintained its guidance of 10-12 ANDA launches every
year.
The company has also done 505 (b) 2 filing for Warfarin in the US and
expected to file 10-12 ANDAs every year. Till date, it has filed 70 ANDA’s (3
in 2QFY2016), received 44 approvals (2 in 2QFY2016) and launched 27
ANDA’s in the market.
Investment arguments
Focus on chronic segment to drive domestic formulation growth: Alembic Pharma
has been restructuring its business portfolio, which would aid in improving its
growth and operating performance. The company’s domestic formulation business
contributed 52% to its total sales in FY2015. 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 FY2015-17E, we expect the domestic formulation business to grow at a CAGR
of 13.0%.
Exports- US the key growth driver: On the exports front, the formulation business
contributed 31% to the total turnover, with majority of the contribution coming
from Europe and the US. In the US, the company has filed for ~70 ANDAs till date
and received 44 approvals. The company, going forward, expects to keep its
momentum high in terms of number of filings, by filing around 10-12 ANDAs per
annum. For FY2015-17E, we expect exports to register a CAGR of 63.1%.
Outlook and valuation: Alembic Pharma’s growth and profitability profile has
improved post the restructuring carried out by the Management. Over FY2015-17,
we expect the company to post a CAGR of 23.1% and 26.1% in sales and
net profit, respectively. We recommend a Neutral on the stock, on back of valuations.
November 10, 2015
4
Alembic Pharma | 2QFY2016 Result Update
Exhibit 6: Key assumptions
FY2016E
FY2017E
Domestic formulation sales growth (%)
10.0
16.0
Exports sales growth (%)
124.0
19.0
R&D as % of sales
6.0
6.0
Operating margins (%)
24.1
20.2
Capex (` cr)
150
150
Net Debt/Equity (x)
0.1
(0.2)
Source: Company, Angel Research
Exhibit 7: Recommendation summary
Reco.
CMP Tgt Price Upside
FY2017E
FY15-17E
FY2017E
(`)
(`)
(%) PE (x) EV/Sales (x) EV/EBITDA (x)
CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Neutral
675
-
-
28.2
4.0
19.8
26.1
30.3
30.2
Aurobindo Pharma Accumulate
820
872
6.3
18.8
3.0
13.2
16.3
23.4
30.2
Cadila Healthcare
Neutral
429
-
-
24.4
3.7
16.7
24.6
25.2
29.0
Cipla
Neutral
659
-
-
22.8
3.1
16.4
21.4
17.1
16.8
Dr Reddy's
Neutral
4,253
-
-
22.1
3.3
14.7
21.6
20.6
22.0
Dishman Pharma
Neutral
402
-
-
18.6
1.7
8.6
20.4
11.7
11.7
GSK Pharma*
Neutral
3,191
-
-
46.7
8.1
36.9
6.6
33.7
34.3
Indoco Remedies
Neutral
310
-
-
22.4
2.4
13.4
23.0
19.7
19.7
Ipca labs
Buy
733
900
22.7
26.2
2.6
14.0
26.1
13.0
14.9
Lupin
Neutral
1,838
-
-
26.9
4.7
17.5
13.1
29.6
24.7
Sanofi India*
Neutral
4,276
-
-
28.2
3.7
17.6
33.1
27.9
25.5
Sun Pharma
Buy
816
950
16.4
30.3
5.3
17.4
8.4
15.8
16.6
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.
November 10, 2015
5
Alembic Pharma | 2QFY2016 Result Update
Profit & Loss Statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E
FY2017E
Gross sales
1,526
1,871
2,064
2,674
3,131
Less: Excise duty
10
8
11
16
19
Net sales
1,516
1,863
2,053
2,658
3,112
Other operating income
3.1
3.2
5.7
2.0
2.0
Total operating income
1,519
1,866
2,058
2,660
3,114
% chg
4.0
22.8
10.3
29.2
17.1
Total expenditure
1,267
1,506
1,653
2,017
2,485
Net raw materials
681
713
715
1,172
1,372
Other mfg costs
67
82
90
64
106
Personnel
194
247
307
213
249
Other
326
463
542
569
758
EBITDA
249
358
400
641
627
% chg
22.5
43.7
11.7
60.4
(2.1)
(% of Net Sales)
16.4
19.2
19.5
24.1
20.2
Depreciation& amortisation
35
40
44
47
53
Interest & other charges
15
10
2
16
12
Other income
4
0
0
-
-
(% of PBT)
2
0
0
-
-
Share in profit of Associates
-
-
-
-
-
Recurring PBT
206
308
360
578
563
% chg
Extraordinary expense/(Inc.)
-
-
-
-
-
PBT (reported)
206
308
360
578
563
Tax
41
75
76
115
112
(% of PBT)
19.9
24.4
21.2
19.9
19.9
PAT (reported)
165
236
283
463
451
Add: Share of earnings of asso.
-
-
-
-
-
Less: Minority interest (MI)
-
-
-
-
-
Prior period items
-
-
-
-
-
PAT after MI (reported)
165
236
283
463
451
ADJ. PAT
165
236
283
463
451
% chg
26.7
43.0
20.0
63.6
(2.8)
(% of Net Sales)
10.9
12.7
13.8
17.4
14.5
Basic EPS (`)
8.8
12.5
15.0
24.6
23.9
Fully Diluted EPS (`)
8.8
12.5
15.0
24.6
23.9
% chg
26.7
43.0
20.0
63.6
(2.8)
November 10, 2015
6
Alembic Pharma | 2QFY2016 Result Update
Balance Sheet (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E
FY2017E
SOURCES OF FUNDS
Equity share capital
37.7
37.7
37.7
37.7
37.7
Preference Capital
-
-
-
-
-
Reserves & surplus
465
638
847
1,256
1,652
Shareholders funds
503
676
885
1,293
1,689
Minority Interest
Other Long Term Liabilities
12.8
12.7
15.8
14.3
15.3
Long Term Provisions
6.1
6.7
6.4
7.4
8.4
Total loans
187
78
239
150
151
Deferred tax liability
14
23
31
31
31
Total liabilities
722
795
1,177
1,497
1,896
APPLICATION OF FUNDS
Gross block
572
665
907
1,057
1,207
Less: acc. depreciation
228
268
313
359
412
Net block
344
397
595
698
795
Capital work-in-progress
32
21
35
35
35
Goodwill
-
-
-
-
-
Long Term Loans and Adv.
36
42
118
118
118
Investments
3.3
3.4
2.3
3.3
3.3
Current assets
632
755
891
1,359
1,783
Cash
16
24
55
171
392
Loans & advances
116
147
120
346
405
Other
500
584
716
843
987
Current liabilities
325
422
464
718
840
Net current assets
307
333
426
641
943
Mis. Exp. not written off
-
-
-
-
-
Total assets
722
795
1,177
1,497
1,896
November 10, 2015
7
Alembic Pharma | 2QFY2016 Result Update
Cash Flow Statement (Consolidated)
Y/E March (` cr)
FY2013 FY2014 FY2015 FY2016E FY2017E
Profit before tax
206
308
360
578
563
Depreciation
35
40
44
47
53
(Inc)/Dec in Working Capital
(78)
(84)
66
(137)
98
Less: Other income
-
-
-
-
-
Direct taxes paid
41
75
76
115
112
Cash Flow from Operations
121
190
393
373
602
(Inc.)/Dec.in Fixed Assets
(84)
(81)
(257)
(150)
(150)
(Inc.)/Dec. in Investments
-
-
-
-
-
Other income
-
-
-
-
-
Cash Flow from Investing
(84)
(81)
(257)
(150)
(150)
Issue of Equity
-
-
-
-
-
Inc./(Dec.) in loans
(165)
(109)
164
(89)
3
Dividend Paid (Incl. Tax)
(55)
(55)
(55)
(55)
(55)
Others
(39)
(34)
184
160
51
Cash Flow from Financing
(259)
(197)
293
16
(1)
Inc./(Dec.) in Cash
(31)
8
31
116
221
Opening Cash balances
47
16
24
55
171
Closing Cash balances
16
24
55
171
392
November 10, 2015
8
Alembic Pharma | 2QFY2016 Result Update
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016E
FY2017E
Valuation Ratio (x)
P/E (on FDEPS)
77.1
53.9
44.9
27.5
28.2
P/CEPS
63.7
46.0
38.9
25.0
25.3
P/BV
25.3
18.8
14.4
9.8
7.5
Dividend yield (%)
0.4
0.4
0.4
0.4
0.4
EV/Sales
8.5
6.8
6.2
4.7
4.0
EV/EBITDA
51.8
35.7
32.1
19.7
19.8
EV / Total Assets
17.8
16.0
10.9
8.4
6.5
Per Share Data (`)
EPS (Basic)
8.8
12.5
15.0
24.6
23.9
EPS (fully diluted)
8.8
12.5
15.0
24.6
23.9
Cash EPS
10.6
14.7
17.4
27.1
26.7
DPS
2.5
2.5
2.5
2.5
2.5
Book Value
26.7
35.8
46.9
68.6
89.6
Dupont Analysis
EBIT margin
14.1
17.0
17.3
22.3
18.5
Tax retention ratio
80.1
75.6
78.8
80.1
80.1
Asset turnover (x)
2.1
2.5
2.2
2.2
2.2
ROIC (Post-tax)
23.9
32.5
29.6
38.9
32.6
Cost of Debt (Post Tax)
4.5
5.6
0.9
6.4
6.4
Leverage (x)
0.6
0.2
0.1
0.1
(0.1)
Operating ROE
34.8
38.2
33.8
42.0
30.5
Returns (%)
ROCE (Pre-tax)
29.6
39.9
30.2
39.7
30.3
Angel ROIC (Pre-tax)
31.9
44.5
38.7
50.0
41.7
ROE
36.8
40.0
36.3
42.5
30.2
Turnover ratios (x)
Asset Turnover (Gross Block)
2.9
3.0
2.6
2.7
2.8
Inventory / Sales (days)
63.1
56.5
61.5
60.1
71.7
Receivables (days)
51.9
49.5
56.3
55.4
62.4
Payables (days)
72.6
79.8
79.3
43.1
46.1
WC cycle (ex-cash) (days)
78.6
58.6
60.3
57.8
59.9
Solvency ratios (x)
Net debt to equity
0.3
0.1
0.2
(0.0)
(0.1)
Net debt to EBITDA
0.7
0.2
0.5
(0.0)
(0.4)
Interest Coverage (EBIT / Int.)
14.3
32.3
199.5
38.2
47.7
November 10, 2015
9
Alembic Pharma | 2QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
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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
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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)
November 10, 2015
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