Alembic Pharma Limited (APL) posted results below than expectations due to lower Abilify sales and high R&D expenses. For the quarter sales grew by 25% yoy to Rs 625.6cr. EBITDA margins got impacted by high R&D expenses – 17.7% in Q4 at Rs 111 cr vs Rs 30.5 cr in Q4FY15 and Rs 70 cr in Q3FY16. EBITDA margins were 22.9% vs 19.7% (sequentially margins are not comparable due to high contrition by Abilify in Q3). PAT grew by 29.6% yoy to Rs 91 cr. This is the third quarter of Abilify’s revenues for the company (share in profits which it gets delayed by 1 quarter), however due to increase competition Alembic Pharma’s partner’s market share has declined and hence the contribution. Domestic revenue including generics have grown marginally by 5.5% to Rs 277 cr. The silver lining was management’s comment that US base business (ex Abilify) has groen as well. Also, the company has accelerated the pace of R&D further and intends to spend Rs 450 cr on it in FY17 vs Rs 307 cr spent in FY16. Alembic Pharma has created an impressive US base and product portfolio despite being a late entrant. Therefore, we feel confident that going forward, company’s plan of higher R&D spend would prove yielding though can impact near term margins. We expect APL to report sales growth of 4.6% (due to high base of FY16)/12.6% in FY17E/FY18E with 23%/24% EBITDA margins respectively.
- APL has guided for regain of some of the market share in Abilify in Q4 which would also fuel the Q1FY17 international business growth.
- The company had to undertake price cuts in its NLEM portfolio which impacted the domestic growth, aided by moderate growth in acute segment. Specialty segment now contributes 60% of APL’s domestic formulations business. For FY16, therapeutic category wise Cardiology/Anti Diabetic/Gynaecology grew by 36%/34%/25% respectively.
- The company filed 8 ANDA and 9 DMF during FY16 taking the cumulative figure to 76 and 81 respectively.
- APL had received 483 for its Panelav facility (inspected in Mar’16) however management is confident that these issue would be resolved soon as there is no data integrity issue.
- The company has picked up 40 projects under Orbicular JV (for dermatology) of which 10-15 products are in advanced stage. The cumulative market size of these products is $5bn.
- Capex for FY17 is likely to be upwards of Rs 300 cr.
Valuation & Recommendation:
Though next 2-3 years would change the growth trajectory of the company, we believe the current rich valuations factor in much of the upside and considering the near term pain, we recommend investors to HOLD on the stock. At 25x PE of FY17E earnings our target price comes to Rs 701.
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