Alembic Pharma Q4 Review - Scale-Up In U.S. Generics Is The Key For Better Earnings Outlook: Motilal Oswal

Motilal Oswal Report

Alembic Pharmaceuticals Ltd. delivered 12%/14%/7% beat on sales/Ebitda/profit after tax estimates for Q4 FY23. Superior performance in domestic formulation, Non-U.S. exports, and the active pharma ingredient segment led to better-than-expected operational performance for the quarter.

We revise down our earnings estimate by 4%/2% for FY24/FY25 factoring in-

1. ongoing price erosion in the U.S. generics segment and

2. incremental operating expense due to commercialisation of new injectable facilities. This is partly offset by robust growth momentum in the domestic formulation segment and improving outlook in the API segment.

We Alembic Pharma at 17 times 12 months forward earnings to arrive at a price target of Rs 550. While the operational cost related to new injectable facilities would be expensed in profit and loss and there would be controlled research and development spend, we await better clarity on potential product approvals for the U.S. market to provide meaningful improvement in profitability as well as return ratios.

Also, the current valuation is fair for projected earnings growth over the next two years.

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