Alembic Pharma - U.S. Sales, Profitability To Improve: Prabhudas Lilladher

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Prabhudas Lilladher Report

We hosted the management of Alembic Pharmaceuticals Ltd. for NDR at Mumbai. The company had strong growth trajectory over FY15-21 (27% profit after tax compound annual growth rate), largely aided by U.S. sales where they managed to benefit from certain niche product specific opportunities.

Strong cash flow generated from these opportunities induced company to get aggressive for U.S. market and expand capabilities.

Alembic Pharma committed Rs 31 billion (~75% of Ebitda) of capex over FY18-21 to create new manufacturing capacities for oral solids, oncology injectables, generic injectables, derma and ophthalmic.

Due to Covid led disruptions, subsequent delay in plant approval by U.S. Food and drug administration, U.S. pricing pressure, Alembic Pharma decided to write off Rs 11.5 billion.

Given negative operating leverage, higher cost of goods sold and depreciation charges, net profit decline by 45% CAGR over FY21-23.

We believe that U.S. business has bottomed out, but reduced capex and research and development intensity coupled with favorable input cost scenario should aid growth and improve profitability.

In our view recovery may be gradual that hinges on timely and niche approvals in U.S.

Alembic Pharma currently trades at 26.7 times/20.9 times FY24E/FY25E price/earning respectively and 15.63 times/12.78 times FY24E/FY25E enterprise /Ebitda respectively.

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Prabhudas Lilladhe Alembic Pharma Company Update.pdf

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