1QFY2017 Result Update | Pharmaceutical

August 4, 2016

Alembic Pharmaceuticals

NEUTRAL

CMP

`622

Performance Highlights

Target Price

Y/E March (` cr)

1QFY2017 4QFY2016

% chg (qoq) 1QFY2016

% chg (yoy)

Investment Period

Net Sales

727

626

16.2

583

24.8

Other Income

(61.3)

46.9

Stock Info

Operating Profit

156

142

9.6

101

54.2

Sector

Pharmaceutical

Interest

(17.7)

11,746

Market Cap (` cr)

Adj. Net Profit

104

13.8

44.6

Net Debt (` cr)

814

Source: Company, Angel Research

Beta

0.7

For 1QFY2017, Alembic Pharmaceuticals posted sales of `727cr V/s `780cr

52 Week High / Low

755/514

expected and V/s `583cr in 1QFY2016, ie a yoy growth of 24.8%. Formulations

23,306

Avg. Daily Volume

(`607.6cr) grew 29.3% yoy, while API (`128cr) grew 7.0% yoy. On the operating

Face Value (`)

profit front, the OPM came in at 21.4% V/s 17.4% in 1QFY2016 and V/s 22.7%

27,982

BSE Sensex

expected. Expansion in the OPM was mainly on back of gross margin expansion

8,623

Nifty

to 73.7% (V/s 63.4% in 1QFY2016). R&D Exp during the quarter was 10.9% of

ALEM.BO

Reuters Code

sales V/s 8.2% in 1QFY2016. This led the company to post an Adj. net profit of

Bloomberg Code

ALPM@IN

`104cr V/s `72cr in 1QFY2016, a yoy growth of 44.6%. We maintain our Neutral

rating.

Shareholding Pattern (%)

Results below expectations: For 1QFY2017, the company posted sales of `727cr

Promoters

74.1

V/s `780cr expected and V/s `583cr in 1QFY2016, a yoy growth of 24.8%.

MF / Banks / Indian Fls

3.5

Formulations (`607.6cr) grew 29.3% yoy, while API (`128cr) grew by 7.0% yoy.

FII / NRIs / OCBs

11.1

The formulations growth was driven by international formulations

(`309cr)

Indian Public / Others

11.3

posting a yoy growth of 72.0%, while Indian formulations (`278cr) grew 6.0%

yoy. On the operating front, the OPM came in at 21.4% V/s 17.4% in 1QFY2016

and V/s 22.7% expected. Expansion in the OPM was mainly on back of gross

Abs. (%)

3m 1yr

3yr

margin expansion to 73.7% (V/s 63.4% in 1QFY2016). This led the company to

Sensex

3.1

(8.7)

28.2

post an Adj. net profit of `104cr V/s `72cr in 1QFY2016, a yoy growth of 44.6%.

Alembic Pharma

4.7

(12.3)

341.3

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.

3-year price chart

900

We recommend a 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

% 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)

41.4

16.3

25.5

20.5

RoE (%)

36.3

57.9

25.5

25.3

RoCE (%)

30.2

51.0

27.2

27.5

P/BV (x)

13.2

7.3

5.8

4.6

Sarabjit Kour Nangra

EV/Sales (x)

5.8

3.6

3.3

2.7

+91- 22- 36357600 - 6806

EV/EBITDA (x)

29.6

11.3

16.2

12.7

[email protected]

Source: Company, Angel Research; Note: CMP as of August 3, 2016

Please refer to important disclosures at the end of this report

Alembic Pharma | 1QFY2017 Result Update

Exhibit 1: 1QFY2017 performance (Consolidated)

Y/E March (` cr)

1QFY2017

4QFY2016

% chg (qoq) 1QFY2016

% chg (yoy) FY2016 FY2015

% chg (yoy)

Net sales

727

626

16.2

583

24.8

3,145

2,053

53.2

Other income

(61.3)

46.9

51.7

Total income

728

629

584

24.8

3,154

2,059

Gross profit

536

502

6.9

369

45.1

2376

1338

77.6

Gross margin

73.7

80.2

63.4

75.5

65.2

Operating profit

156

142

9.6

101

54.2

1002

400

150.6

Operating margin (%)

21.4

22.7

17.4

31.9

19.5

Interest

(17.7)

84.0

Depreciation

(20.6)

50.3

64.1

PBT

137

120

13.9

54.6

936

359

160.6

Provision for taxation

16.4

77.4

216

184.2

PAT before Extra-ordinary item

104

13.6

44.6

720

283

154.3

Extra-Ordinary Expenses

(2)

(0)

PAT after Extra-ord. item & MI

104

13.8

44.6

720

283

154.3

EPS (`)

5.5

4.8

3.8

38.2

15.0

Source: Company, Angel Research

Exhibit 2: 1QFY2017 - Actual vs Angel estimates

(` cr)

Actual

Estimates

Variation (%)

Net Sales

727

780

(6.8)

Other Income

41.0

Operating Profit

156

177

(11.9)

Interest

78.3

Tax

19.6

Net Profit

102

137

(25.4)

Source: Company, Angel Research

Sales below expectation: For 1QFY2017, the company posted sales of `727cr

V/s `780cr expected and V/s `583cr in 1QFY2016, a yoy growth of 24.8%. The

formulations (`607.6cr) grew 29.3% yoy while API (`128cr) grew 7.0% yoy. The

formulations growth was driven by international formulation (`309cr) which grew

72.0% yoy, while Indian formulations (`278cr) grew 6.0% yoy.

The growth in sales was driven by the international formulations business (`309cr)

which posted a yoy growth of 72.0%, while Indian formulations (`278cr) posted a

6.0% yoy growth. The growth in the Indian formulations segment was driven by the

specialty segment which grew by 16% yoy, while the acute segment de-grew by

10% 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 (`128cr) posted a growth of 7.0% yoy. Till date, the

company has filed 78 products (2 in 1QFY2017) in USA.

August 4, 2016

Alembic Pharma | 1QFY2017 Result Update

Exhibit 3: Sales trend

1080

1,008

921

880

727

582

626

680

480

280

1QFY2016

2QFY2016

3QFY2016

4QFY2016

1QFY2017

Source: Company, Angel Research

OPM lower than expectation: On the operating profit front, the OPM came in at

21.4% V/s 17.4% in 1QFY2016 and V/s 22.7% expected. Expansion in the OPM

was mainly on back of gross margin expansion to 73.7% V/s 63.4% in 1QFY2016.

R&D expenses during the quarter were 10.9% of sales V/s 8.2% in 1QFY2016.

Exhibit 4: OPM Trend (%)

45.0

41.7

40.0

37.2

35.0

30.0

25.0

22.7

21.4

20.0

17.4

15.0

1QFY2016

2QFY2016

3QFY2016

4QFY2016

1QFY2017

Source: Company, Angel Research

Net profit below expectation: The Adj. net profit stood at `104cr V/s `70cr in

1QFY2016, a yoy growth of 46.1%. This was against the expectation of `137cr.

August 4, 2016

Alembic Pharma | 1QFY2017 Result Update

Exhibit 5: Net profit trend

350

300

289

269

250

200

150

104

100

1QFY2016

2QFY2016

3QFY2016

4QFY2016

1QFY2017

Source: Company, Angel Research

Concall highlights

 The company has given `500cr of capex guidance for FY2017; `1,500cr to

be spent over next 2.5 years. Oncology injectable facility to be operational by

FY2017 end.



6-8 US ANDA approvals expected in FY2017.

 API I and II successfully audited by the USFDA without any Form 483.

Investment arguments

Focus on chronic segment to drive domestic formulation growth: Alembic Pharma

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 ~76 ANDAs till date

and received 47 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 a Neutral rating on the stock.

August 4, 2016

Alembic Pharma | 1QFY2017 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

622

20.5

2.7

12.8

(10.8)

27.5

25.3

Aurobindo Pharma Buy

749

877

17.2

15.8

2.6

11.0

18.1

22.5

26.1

Cadila Healthcare

Buy

347

399

15.3

17.4

2.6

11.8

15.8

24.3

26.6

Cipla

Neutral

529

19.5

2.5

13.4

20.4

13.5

15.2

Dr Reddy's

Neutral

2,942

18.6

2.7

10.9

6.9

18.1

17.1

Dishman Pharma

Neutral

164

15.8

1.7

8.0

(1.1)

9.6

10.2

GSK Pharma*

Neutral

3,139

52.9

6.8

36.2

15.9

35.8

31.8

Indoco Remedies

Sell

313

225

(19.6)

20.1

2.3

12.8

31.5

19.1

19.2

Ipca labs

Buy

508

613

20.6

25.8

1.8

11.7

17.9

11.8

14.9

Lupin

Accumulate

1,680

1,809

7.7

24.2

4.0

14.9

17.2

24.4

20.9

Sanofi India

Neutral

4,545

26.9

3.4

19.5

21.2

24.9

28.4

Sun Pharma

Buy

838

944

12.6

25.6

5.2

16.7

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.

August 4, 2016

Alembic Pharma | 1QFY2017 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

Net sales

1,863

2,053

3,145

3,483

4,083

Other operating income

3.2

5.7

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

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

120

Interest & other charges

Other income

(% of PBT)

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

216

137

171

(% of PBT)

24.4

21.2

23.1

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

August 4, 2016

Alembic Pharma | 1QFY2017 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr)

FY2014

FY2015

FY2016

FY2017E

FY2018E

SOURCES OF FUNDS

Equity share capital

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

Long Term Provisions

6.7

6.4

7.4

Total loans

239

133

150

Deferred tax liability

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

Goodwill

Long Term Loans and Adv.

118

Investments

3.4

2.3

2.1

3.3

Current assets

755

891

1,507

1,955

2,554

Cash

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

August 4, 2016

Alembic Pharma | 1QFY2017 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr)

FY2014

FY2015

FY2016 FY2017E FY2018E

Profit before tax

308

360

936

596

743

Depreciation

120

(Inc)/Dec in Working Capital

(84)

191

(358)

169

Less: Other income

Direct taxes paid

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)

Others

(34)

184

160

Cash Flow from Financing

(197)

293

(6)

(4)

Inc./(Dec.) in Cash

396

(53)

331

Opening Cash balances

451

398

Closing Cash balances

451

398

729

August 4, 2016

Alembic Pharma | 1QFY2017 Result Update

Key Ratios

Y/E March

FY2014

FY2015

FY2016

FY2017E

FY2018E

Valuation Ratio (x)

P/E (on FDEPS)

49.7

41.4

16.3

25.5

20.5

P/CEPS

42.4

35.8

14.8

21.0

16.9

P/BV

17.3

13.2

7.3

5.8

4.6

Dividend yield (%)

0.4

EV/Sales

6.3

5.8

3.6

3.3

2.7

EV/EBITDA

32.9

29.6

11.3

16.2

12.7

EV / Total Assets

14.8

10.0

6.2

5.1

4.0

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

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

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

Leverage (x)

0.2

0.1

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

August 4, 2016

Alembic Pharma | 1QFY2017 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER

Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,

Bombay Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL

and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a

registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number

INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing

/dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public

offering of securities of the company covered by Analyst during the past twelve months.

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should

make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the

companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine

the merits and risks of such an investment.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate the

contrary view, if any.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable

sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this

document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way

responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.

Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot

testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.

While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be

regulatory, compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from

or in connection with the use of this information.

Disclosure of Interest Statement

Alembic Pharma

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

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)

August 4, 2016