3QFY2017 Result Update | Pharmaceutical
January 31, 2017
Alembic Pharmaceuticals
NEUTRAL
CMP
`575
Performance Highlights
Target Price
-
Y/E March (` cr)
3QFY2017 2QFY2017
% chg (qoq) 3QFY2016
% chg (yoy)
Investment Period
-
Net Sales
770
872
(11.7)
921
(16.4)
Other Income
1
0
0.0
4
(75.3)
Stock Info
Operating Profit
145
177
(18.4)
384
(62.4)
Pharmaceutical
Sector
Interest
1
1
(21.9)
1
2.7
10,837
Market Cap (` cr)
Adj. Net Profit
87
119
(27.1)
269
(67.8)
Net Debt (` cr)
814
Source: Company, Angel Research
0.4
Beta
52 Week High / Low
700/514
Alembic Pharma posted lower than expected numbers for 3QFY2017. In sales,
Avg. Daily Volume
16,761
the company posted revenues of
`770cr
(`872cr expected) v/s
`921cr in
2
3QFY2016, dip of 16.4% yoy. The dip in sales was mainly on the back of the
Face Value (`)
27,882
International sales, which came in at `303cr v/s `521cr in 3QFY2016, a dip of
BSE Sensex
41.8%. The Indian branded sales came in at `294cr v/s `288cr, a yoy growth of
Nifty
8,641
2.1%. On EBITDA front, the company posted an EBITDA of 18.8% (20.6%
Reuters Code
ALEM.BO
expected) v/s 41.7% in 3QFY2016. Consequently, PAT came in at `87cr (lower
Bloomberg Code
[email protected]
than expectations) v/s `270cr in 3QFY2016, de-growth of 67.8% yoy. We
maintain our Neutral rating.
Shareholding Pattern (%)
Results below expectations: In sales, the company posted revenues of `770cr
Promoters
72.7
(`872cr expected) v/s `921cr in 3QFY2016, dip of 16.4% yoy. The dip in sales
MF / Banks / Indian Fls
4.0
was mainly on back of the International sales, which came in at `303cr v/s
FII / NRIs / OCBs
11.0
`521cr in 3QFY2016, a dip of 41.8%. The Indian branded sales came in at
Indian Public / Others
12.3
`294cr v/s `288cr in 3QFY2016, a yoy growth of 2.1%. On EBITDA front, the
company posted an EBITDA of 18.8% (20.6% expected) v/s 41.7% in 3QFY2016.
The dip came in on the back of high R&D expenses, which came in at 15.2% of
Abs. (%)
3m 1yr
3yr
sales v/s 7.6% of sales in 3QFY2016. Consequently, PAT, came in at `87cr (lower
Sensex
(0.1)
13.8
34.6
than expectations) v/s `270cr in 3QFY2016, de-growth of 67.8% yoy.
Alembic Pharma
(13.6)
(4.5)
164.5
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 the back of
3-year price chart
higher R&D spend, which is likely to reach 13-14% of sales in FY2017-FY2018E.
900
We maintain our Neutral rating on the stock.
750
Key Financials (Consolidated)
600
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
450
Net Sales
2,053
3,145
3,483
4,083
300
% chg
10.2
53.2
10.8
17.2
150
Net Profit
283
720
459
572
0
% chg
20.0
154.1
(36.2)
24.7
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)
38.3
15.1
23.6
18.9
RoE (%)
36.3
57.9
25.5
25.3
RoCE (%)
30.2
51.0
27.2
27.5
P/BV (x)
12.3
6.8
5.4
4.3
Sarabjit Kour Nangra
EV/Sales (x)
5.3
3.3
3.0
2.5
+91- 22- 36357600 - 6806
EV/EBITDA (x)
27.3
10.5
14.9
11.7
[email protected]
Source: Company, Angel Research; Note: CMP as of January 27, 2017
Please refer to important disclosures at the end of this report
1
Alembic Pharma | 3QFY2017 Result Update
Exhibit 1: 3QFY2017 performance (Consolidated)
Y/E March (` cr)
3QFY2017
2QFY2017
% chg (qoq) 3QFY2016
% chg (yoy) 9MFY2017 9MFY2016
% chg (yoy)
Net sales
770
872
(11.7)
921
(16.4)
2,365
2,511
(5.8)
Other income
1
0
4
(75.3)
4
5
(27.2)
Total income
771
872
(11.6)
925
(16.7)
2,368
2,516
Gross profit
565
632
(10.7)
715
(21.0)
1729
1866
(7.4)
Gross margin
73.3
72.5
77.6
73.1
74.3
Operating profit
145
177
(18.4)
384
(62.4)
478
860
(44.5)
Operating margin (%)
18.8
20.3
41.7
20.2
34.2
Interest
1
1
(21.9)
1
3
2
39.0
Depreciation
21
21
2.5
22
(4.0)
61
48
27.4
PBT
124
156
(20.5)
365
(66.2)
417
815
(48.8)
Provision for taxation
39
33
18.5
95
(58.7)
106
187
(43.5)
PAT before Extra-ordinary item
87
122
(29.3)
269
(67.8)
312
629
(50.5)
(Profit)/Loss of Associate Company
0
4
(0)
(1)
0
PAT after Extra-ordinary item & MI
87
119
(27.1)
269
(67.8)
310
630
(50.7)
EPS (`)
4.6
6.3
14.3
16.5
33.3
Source: Company, Angel Research
Exhibit 2: 3QFY2017 - Actual vs Angel estimates
(` cr)
Actual
Estimates
Variation (%)
Net Sales
770
872
(11.7)
Other Income
1
4
(71.9)
Operating Profit
145
180
(19.6)
Interest
1
1
(27.9)
Tax
39
27
45.6
Net Profit
87
134
(35.2)
Source: Company, Angel Research
Sales below expectation: In sales, the company posted revenues of `770cr (`872cr
expected) v/s `921cr in 3QFY2016, dip of 16.4% yoy. The dip in sales was mainly
on the back of the International sales, which came in at `303cr v/s `521cr in
3QFY2016, a dip of 41.8%. The Indian branded sales came in at `294cr v/s
`288cr, a yoy growth of 2.1%. API sales, on the other hand, came in at `166cr v/s
`101cr in 3QFY2016, a yoy growth of 66.0%.
International sales, during the quarter contributed around
39% of sales in
3QFY2017, while Indian branded formulation sales contributed around 37.9% of
sales in 3QFY2017. US markets sales were around `226cr in 3QFY2017. In
terms, of filling, the company has filed 4 products in US, while 3 products received
approval during the quarter.
January 31, 2017
2
Alembic Pharma | 3QFY2017 Result Update
Exhibit 3: Sales trend
1,080
921
872
872
880
770
680
626
480
280
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Source: Company, Angel Research
OPM lower than expectation: On EBITDA front, the company posted an EBITDA of
18.8% (20.6% expected) v/s 41.7% in 3QFY2016. The dip came in on the back of
the high R&D expenses, which came in at 15.2% of sales v/s 7.6% of sales in
3QFY2016. Also, other expenses came in higher - the employee expenses and
other expenses rose by 33.5% and 43.6% respectively.
Exhibit 4: OPM Trend (%)
(%)
45.0
41.7
40.0
35.0
30.0
25.0
22.7
20.3
20.0
20.3
18.8
15.0
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Source: Company, Angel Research
Net profit above expectation: Consequently, PAT came in at `87cr (lower than
expectations) v/s `270cr in 3QFY2016, de-growth of 67.8% yoy.
January 31, 2017
3
Alembic Pharma | 3QFY2017 Result Update
Exhibit 5: Net profit trend
350
269
300
250
200
150
91
119
119
87
100
50
0
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Source: Company, Angel Research
Concall highlights
Oncology oral solids and injectable facilities to be operational by FY2017 end
~39 pending ANDAs, of which ~40% are Para IV/FTFs
R&D expenses to be `400-450cr in FY2017
General injectable and derma filings in the US will start from FY2019
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%.
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 ~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 the 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 maintain our Neutral rating on the stock.
January 31, 2017
4
Alembic Pharma | 3QFY2017 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
575
-
-
18.9
2.5
11.8
(10.8)
27.5
25.3
Aurobindo Pharma Accumulate
713
877
22.9
15.1
2.5
10.5
18.1
22.5
26.1
Cadila Healthcare
Accumulate
363
400
10.3
18.9
2.9
13.2
13.4
22.7
25.7
Cipla
Sell
580
490
(15.6)
21.3
2.7
14.7
20.4
13.5
15.2
Dr Reddy's
Neutral
2,999
-
-
21.0
2.7
10.2
1.7
16.2
15.9
Dishman Pharma
Neutral
234
-
-
20.7
2.3
10.2
13.3
10.3
10.9
GSK Pharma
Neutral
2,732
-
-
44.9
6.8
33.0
17.3
35.3
32.1
Indoco Remedies
Reduce
275
240
(12.7)
17.2
2.0
11.0
33.2
19.1
20.1
Ipca labs
Accumulate
537
613
14.2
27.3
1.9
12.4
36.5
8.8
9.4
Lupin
Buy
1,492
1,809
21.3
21.5
3.5
13.3
17.2
24.4
20.9
Sanofi India*
Neutral
4,181
-
-
24.3
3.2
17.3
22.2
25.6
28.8
Sun Pharma
Buy
640
847
32.4
18.1
3.5
11.5
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.
January 31, 2017
5
Alembic Pharma | 3QFY2017 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
January 31, 2017
6
Alembic Pharma | 3QFY2017 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
January 31, 2017
7
Alembic Pharma | 3QFY2017 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
January 31, 2017
8
Alembic Pharma | 3QFY2017 Result Update
Key Ratios
Y/E March
FY2014
FY2015
FY2016
FY2017E
FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
45.9
38.3
15.1
23.6
18.9
P/CEPS
39.2
33.1
13.7
19.4
15.7
P/BV
16.0
12.3
6.8
5.4
4.3
Dividend yield (%)
0.4
0.4
0.4
0.4
0.4
EV/Sales
5.8
5.3
3.3
3.0
2.5
EV/EBITDA
30.4
27.3
10.5
14.9
11.7
EV / Total Assets
13.7
9.3
5.7
4.7
3.7
Per Share Data (`)
EPS (Basic)
12.5
15.0
38.2
18.7
23.7
EPS (fully diluted)
12.5
15.0
38.2
18.7
23.7
Cash EPS
14.7
17.4
42.0
23.9
30.0
DPS
2.5
2.5
2.5
2.5
2.5
Book Value
35.8
46.9
84.9
100.7
121.5
Dupont Analysis
EBIT margin
17.0
17.3
29.6
13.4
14.5
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
22.5
23.7
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
22.5
23.7
Returns (%)
ROCE (Pre-tax)
39.9
30.2
51.0
22.0
23.5
Angel ROIC (Pre-tax)
44.5
38.7
77.0
29.5
30.7
ROE
40.0
36.3
57.9
20.1
21.3
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
68.4
72.5
Receivables (days)
49.5
56.3
43.5
56.3
62.3
Payables (days)
79.8
79.3
37.8
39.7
44.6
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)
(0.2)
(0.5)
Interest Coverage (EBIT / Int.)
32.3
199.5
252.8
47.2
56.2
January 31, 2017
9
Alembic Pharma | 3QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
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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)
January 31, 2017
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