2QFY2017 Result Update | Pharmaceutical
November 7, 2016
Alembic Pharmaceuticals
NEUTRAL
CMP
`676
Performance Highlights
Target Price
-
Y/E March (` cr)
2QFY2017 1QFY2017
% chg (qoq) 2QFY2016
% chg (yoy)
Investment Period
-
Net Sales
872
727
19.9
1008
(13.5)
Stock Info
Other Income
0
1
(97.2)
1
(95.9)
Sector
Pharmaceutical
Operating Profit
177
156
13.6bp
375
(52.8)bp
12,363
Market Cap (` cr)
Interest
1
1
(10.3)
1
Net Debt (` cr)
814
Adj. Net Profit
120
104
15.5
289
(58.5)
Beta
0.5
Source: Company, Angel Research
52 Week High / Low
727/514
Alembic Pharmaceuticals posted sales of `872cr (vs. `1,008cr in 2QFY2016), a
Avg. Daily Volume
19,547
2
dip of 13.5% yoy, mainly on back of base effect. International business declined
Face Value (`)
27,274
owing to lower contribution from Abilify. On the operating front, the gross margin
BSE Sensex
Nifty
8,434
is expected to come in at 72.5% (vs. 77.5% in 2QFY2016) and EBIDTA margin at
Reuters Code
ALEM.BO
20.3% (vs. 37.2% in 2QFY2016). Consequently, the PAT is expected to come in at
Bloomberg Code
ALPM@IN
`120cr (vs. `289cr in 2QFY2016), a yoy dip of 58.5%. We maintain our Neutral
rating on the stock.
Shareholding Pattern (%)
Results below expectations: Alembic Pharmaceuticals posted sales of `872cr
Promoters
74.4
(vs. `1,008cr in 2QFY2016), a dip of 13.5% yoy, mainly on back of base effect.
MF / Banks / Indian Fls
3.7
International business declined owing to lower contribution from Abilify. On the
FII / NRIs / OCBs
11.3
operating front, the gross margin is expected to come in at 72.5% (vs. 77.5% in
Indian Public / Others
10.6
2QFY2016) and EBIDTA margin at
20.3% (vs.
37.2% in 2QFY2016).
Consequently, the PAT is expected to come in at
`120cr (vs.
`289cr in
2QFY2016), a yoy dip of 58.5%.
Abs. (%)
3m
1yr
3yr
Sensex
(1.0)
3.2
29.1
Outlook and valuation: Over FY2016-18E, we expect the company to post a
Alembic Pharma
15.7
0.2
241.0
CAGR of 13.9% in sales, while profitability will be under pressure on back of
higher R&D spend, which is likely to reach 13-14% of sales in FY2017-FY2018E.
We recommend a Neutral rating on the stock.
3-year price chart
900
Key Financials (Consolidated)
800
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
700
600
Net Sales
2,053
3,145
3,483
4,083
500
% chg
10.2
53.2
10.8
17.2
400
300
Net Profit
283
720
459
572
200
% chg
20.0
154.1
(36.2)
24.7
100
0
EPS (`)
15.0
38.2
24.3
30.4
EBITDA Margin (%)
19.5
31.9
20.2
21.4
Source: Company, Angel Research
P/E (x)
45.0
17.7
27.8
21.6
RoE (%)
36.3
57.9
25.5
25.3
RoCE (%)
30.2
51.0
27.2
27.5
P/BV (x)
14.4
8.0
6.4
5.0
EV/Sales (x)
6.2
3.9
3.6
3.0
Sarabjit Kour Nangra
EV/EBITDA (x)
32.1
12.3
17.6
13.8
+91- 22- 36357600 - 6806
Source: Company, Angel Research; Note: CMP as of November 4, 2016
Please refer to important disclosures at the end of this report
1
Alembic Pharma | 2QFY2017 Result Update
Exhibit 1: 2QFY2017 performance (Consolidated)
Y/E March (` cr)
2QFY2017
1QFY2017
% chg (qoq) 2QFY2016
% chg (yoy) 1HFY2017 1HFY2016
% chg (yoy)
Net sales
872
727
19.9
1,008
(13.5)
1,595
1,585
0.6
Other income
0
1
(97.2)
1
(95.9)
1
2
(27.5)
Total income
872
728
1,009
(13.6)
1,596
1,587
Gross profit
632
536
17.8
782
(19.2)
1168
1151
1.5
Gross margin
72.5
73.7
77.5
73.2
72.6
Operating profit
177
156
13.6
375
(52.8)
333
476
(30.0)
Operating margin (%)
20.3
21.4
37.2
20.9
30.0
Interest
1
1
(10.3)
1
2
1
103.0
Depreciation
21
19
6.4
13
55.4
40
26
53.8
PBT
156
137
13.6
362
(57.0)
294
451
(34.9)
Provision for taxation
33
33
(0.4)
74
(54.9)
66
92
(27.8)
PAT before Extra-ordinary item
122
104
18.1
289
(57.6)
227
360
(36.9)
(Profit)/Loss of Associate Company
4
(2)
(0)
-4
0
PAT after Extra-ordinary item & MI
120
104
15.5
289
(58.5)
224
360
(37.9)
EPS (`)
6.4
5.5
15.3
11.9
19.1
Source: Company, Angel Research
Exhibit 2: 2QFY2017 - Actual vs Angel estimates
(` cr)
Actual
Estimates
Variation (%)
Net Sales
872
750
16.2
Other Income
0
1
(95.9)
Operating Profit
177
164
7.7
Interest
1
1
(12.7)
Tax
33
33
(0.5)
Net Profit
120
112
6.0
Source: Company, Angel Research
Sales above expectation: The sales came in at `872cr (vs. `750cr expected vs.
`1,008cr in 2QFY2016), a dip of 13.5% yoy, mainly on back of base effect.
International formulation business (`352cr in 2QFY2017) posted a yoy dip of
38.4%, while the Indian formulation (`338cr in 2QFY2017) posted a yoy growth of
19.0%. API posted sales of `164cr in 2QFY2017, a yoy growth of 19.7%.
The growth in the Indian formulations segment was driven by the specialty segment
which grew by 16% yoy, while the acute segment grew by 22% yoy during the
period. During FY2016, the specialty segment had a 60% share in domestic
formulations while the rest was accounted by the acute segment (40%).
The API business (`292.5cr) posted a growth of 14.0% yoy. Indian generics posted
sales of `25cr in 2QFY2017. Till date, the company has filed 82 products (4 in
2QFY2017) in USA.
November 7, 2016
2
Alembic Pharma | 2QFY2017 Result Update
Exhibit 3: Sales trend
1080
1,008
921
872
880
727
680
626
480
280
2QFY2016
3QFY2016
4QFY2016
1QFY2017
2QFY2017
Source: Company, Angel Research
OPM lower than expectation: On the operating front, the gross margin came in at
72.5% (vs. 73.4% expected vs. 77.5% in 2QFY2016) and EBIDTA margin at 20.3%
(vs. 21.9% expected vs. 37.2% in 2QFY2016). The R&D expenses, during the
quarter, came in at 12.5% of sales (vs. 7.7% of sales in 2QFY2016).
Exhibit 4: OPM Trend (%)
45.0
41.7
40.0
37.2
35.0
30.0
22.7
25.0
21.4
20.3
20.0
15.0
2QFY2016
3QFY2016
4QFY2016
1QFY2017
2QFY2017
Source: Company, Angel Research
Net profit above expectation: The Adj. net profit stood at `120cr (vs. `289cr in
2QFY2017), a yoy de-growth of 58.5%. This was against the expectation of
`112cr.
November 7, 2016
3
Alembic Pharma | 2QFY2017 Result Update
Exhibit 5: Net profit trend
350
289
269
300
250
200
150
119
104
91
100
50
0
2QFY2016
3QFY2016
4QFY2016
1QFY2017
2QFY2017
Source: Company, Angel Research
Concall highlights
Oncology oral solids and injectable facilities to be operational by FY2017
end.
12-16 US ANDA approvals expected till FY2018 end.
R&D expenses to be `400-450cr in FY2017.
33 pending ANDAs, of which ~40% are Para IV/ FTFs.
Capex for FY2017 to be `600cr.
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 44% to its total sales in FY2016. 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 FY2016-18E, we expect the domestic formulation business to
grow at a CAGR of 15.0%.
Exports- US the key growth driver: On the exports front, the formulation business
contributed by 30% to the total turnover, with majority of the contribution coming
from Europe and the US. In the US, the company has filed for ~82 ANDAs till date
and received 49 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 FY2016-18E, we expect exports to register a CAGR of 13.6%, mainly on
back of base effect impact of FY2016 (sales grew by 46%, due to launch of Abilify).
Outlook and valuation: Over FY2016-18E, we expect the company to post a
CAGR of 13.9% in sales, while profitability will be under pressure on back of
higher R&D spend, which is likely to reach 13-14% of sales in FY2017-FY2018E.
We recommend our Neutral rating on the stock.
November 7, 2016
4
Alembic Pharma | 2QFY2017 Result Update
Exhibit 6: Key assumptions
FY2017E
FY2018E
Domestic formulation sales growth (%)
16.0
14.0
Exports sales growth (%)
8.0
20.0
R&D as % of sales
14.0
13.0
Operating margins (%)
20.2
21.4
Capex (` cr)
400
200
Net Debt/Equity (x)
(0.1)
(0.2)
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
Neutral
656
-
-
21.6
2.9
13.4
(10.8)
27.5
25.3
Aurobindo Pharma Accumulate
727
877
20.7
15.4
2.5
10.7
18.1
22.5
26.1
Cadila Healthcare
Neutral
390
-
-
18.4
3.1
14.3
13.4
22.7
25.7
Cipla
Neutral
545
-
-
20.0
2.5
13.8
20.4
13.5
15.2
Dr Reddy's
Neutral
3,077
-
-
21.5
2.8
12.4
1.7
16.2
15.9
Dishman Pharma
Neutral
227
-
-
20.1
2.3
9.9
3.1
10.3
10.9
GSK Pharma
Neutral
2,775
-
-
46.7
6.0
42.1
15.9
33.7
30.6
Indoco Remedies
Neutral
276
-
-
17.7
2.1
11.3
31.5
19.1
19.2
Ipca labs
Accumulate
583
613
5.1
29.6
2.0
13.4
36.5
8.8
9.4
Lupin
Buy
1,421
1,809
27.3
20.5
3.9
12.6
17.2
24.4
20.9
Sanofi India*
Neutral
4,276
-
-
25.3
3.4
18.2
21.2
24.9
28.4
Sun Pharma
Buy
653
944
44.6
19.9
3.9
12.6
22.0
33.1
18.9
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 7, 2016
5
Alembic Pharma | 2QFY2017 Result Update
Profit & Loss Statement (Consolidated)
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017E
FY2018E
Gross sales
1,871
2,064
3,181
3,522
4,128
Less: Excise duty
8
11
36
39
45
Net sales
1,863
2,053
3,145
3,483
4,083
Other operating income
3.2
5.7
3.6
3.6
3.6
Total operating income
1,866
2,058
3,149
3,487
4,087
% chg
22.8
10.3
53.0
10.7
17.2
Total expenditure
1,506
1,653
2,143
2,779
3,210
Net raw materials
713
715
769
1,045
1,225
Other mfg costs
82
90
138
153
180
Personnel
247
307
421
506
607
Other
463
542
814
1,075
1,198
EBITDA
358
400
1,002
704
873
% chg
43.7
11.7
150.9
(29.7)
24.0
(% of Net Sales)
19.2
19.5
31.9
20.2
21.4
Depreciation& amortisation
40
44
72
99
120
Interest & other charges
10
2
4
10
11
Other income
0
0
6
-
-
(% of PBT)
0
0
-
-
-
Share in profit of Associates
-
-
-
-
-
Recurring PBT
308
360
936
596
743
% chg
49.4
16.8
160.2
(36.3)
24.7
Extraordinary expense/(Inc.)
-
-
-
-
-
PBT (reported)
308
360
936
596
743
Tax
75
76
216
137
171
(% of PBT)
24.4
21.2
23.1
23.0
23.0
PAT (reported)
236
283
720
459
572
Add: Share of earnings of asso.
-
-
(0)
-
-
Less: Minority interest (MI)
-
-
-
-
-
Prior period items
-
-
-
-
-
PAT after MI (reported)
236
283
720
459
572
ADJ. PAT
236
283
720
459
572
% chg
43.0
20.0
154.1
(36.2)
24.7
(% of Net Sales)
12.7
13.8
22.9
13.2
14.0
Basic EPS (`)
12.5
15.0
38.2
24.3
30.4
Fully Diluted EPS (`)
12.5
15.0
38.2
24.3
30.4
% chg
43.0
20.0
154.1
(36.2)
24.7
November 7, 2016
6
Alembic Pharma | 2QFY2017 Result Update
Balance Sheet (Consolidated)
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017E
FY2018E
SOURCES OF FUNDS
Equity share capital
37.7
37.7
37.7
37.7
37.7
Preference Capital
-
-
-
-
-
Reserves & surplus
638
847
1,563
1,967
2,485
Shareholders funds
676
885
1,601
2,005
2,523
Minority Interest
Other Long Term Liabilities
12.7
15.8
33.9
14.3
14.3
Long Term Provisions
6.7
6.4
7.4
7.4
7.4
Total loans
78
239
133
150
150
Deferred tax liability
23
31
50
50
50
Total liabilities
795
1,177
1,824
2,227
2,744
APPLICATION OF FUNDS
Gross block
665
907
1,208
1,608
1,808
Less: acc. depreciation
268
313
385
483
603
Net block
397
595
824
1,125
1,206
Capital work-in-progress
21
-
-
-
-
Goodwill
35
44
Long Term Loans and Adv.
42
118
83
83
83
Investments
3.4
2.3
2.1
3.3
3.3
Current assets
755
891
1,507
1,955
2,554
Cash
24
55
451
398
729
Loans & advances
147
120
409
453
531
Other
584
716
647
1,104
1,294
Current liabilities
422
464
635
940
1,102
Net current assets
333
426
872
1,015
1,452
Mis. Exp. not written off
-
-
-
-
-
Total assets
795
1,177
1,824
2,227
2,744
November 7, 2016
7
Alembic Pharma | 2QFY2017 Result Update
Cash Flow Statement (Consolidated)
Y/E March (` cr)
FY2014 FY2015 FY2016
FY2017E
FY2018E
Profit before tax
308
360
936
596
743
Depreciation
40
44
72
99
120
(Inc)/Dec in Working Capital
(84)
66
191
(358)
169
Less: Other income
-
-
-
-
-
Direct taxes paid
75
76
216
137
171
Cash Flow from Operations
190
393
982
199
861
(Inc.)/Dec.in Fixed Assets
(81)
(222)
(301)
(400)
(200)
(Inc.)/Dec. in Investments
-
-
-
-
-
Other income
-
-
-
-
-
Cash Flow from Investing
(81)
(222)
(301)
(400)
(200)
Issue of Equity
-
-
-
-
-
Inc./(Dec.) in loans
(109)
164
(87)
(2)
-
Dividend Paid (Incl. Tax)
(55)
(55)
(55)
(55)
(55)
Others
(34)
184
160
51
51
Cash Flow from Financing
(197)
293
19
(6)
(4)
Inc./(Dec.) in Cash
8
31
396
(53)
331
Opening Cash balances
16
24
55
451
398
Closing Cash balances
24
55
451
398
729
November 7, 2016
8
Alembic Pharma | 2QFY2017 Result Update
Key Ratios
Y/E March
FY2014
FY2015
FY2016
FY2017E
FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
52.4
43.7
17.2
26.9
21.6
P/CEPS
44.7
37.7
15.6
22.2
17.9
P/BV
18.3
14.0
7.7
6.2
4.9
Dividend yield (%)
0.4
0.4
0.4
0.4
0.4
EV/Sales
6.7
6.1
3.8
3.5
2.9
EV/EBITDA
34.7
31.2
12.0
17.1
13.4
EV / Total Assets
15.6
10.6
6.6
5.4
4.3
Per Share Data (`)
EPS (Basic)
12.5
15.0
38.2
24.3
30.4
EPS (fully diluted)
12.5
15.0
38.2
24.3
30.4
Cash EPS
14.7
17.4
42.0
29.6
36.7
DPS
2.5
2.5
2.5
2.5
2.5
Book Value
35.8
46.9
84.9
106.4
133.8
Dupont Analysis
EBIT margin
17.0
17.3
29.6
17.4
18.5
Tax retention ratio
75.6
78.8
76.9
77.0
77.0
Asset turnover (x)
2.5
2.2
2.5
2.2
2.1
ROIC (Post-tax)
32.5
29.6
57.4
29.2
30.2
Cost of Debt (Post Tax)
5.6
0.9
1.5
5.4
5.4
Leverage (x)
0.2
0.1
0.0
0.0
0.0
Operating ROE
38.2
33.8
57.6
29.2
30.2
Returns (%)
ROCE (Pre-tax)
39.9
30.2
51.0
27.2
27.5
Angel ROIC (Pre-tax)
44.5
38.7
77.0
38.4
39.2
ROE
40.0
36.3
57.9
25.5
25.3
Turnover ratios (x)
Asset Turnover (Gross Block)
3.0
2.6
3.0
2.5
2.4
Inventory / Sales (days)
56.5
61.5
54.1
70.5
78.4
Receivables (days)
49.5
56.3
43.5
56.3
62.3
Payables (days)
79.8
79.3
37.8
41.7
46.9
WC cycle (ex-cash) (days)
58.6
60.3
45.9
54.3
59.8
Solvency ratios (x)
Net debt to equity
0.1
0.2
(0.2)
(0.1)
(0.2)
Net debt to EBITDA
0.2
0.5
(0.3)
(0.4)
(0.7)
Interest Coverage (EBIT / Int.)
32.3
199.5
252.8
61.3
71.8
November 7, 2016
9
Alembic Pharma | 2QFY2017 Result Update
Research Team Tel: 022 - 39357800
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Disclosure of Interest Statement
Alembic Pharma
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
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 7, 2016
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