alembic pharmaceuticals ltd 25...

www.hemonline.com

BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY

Company Report

Alembic Pharmaceuticals Ltd 25th

September, 2012

For Private Circulation Only 1 Hem Research

CMP Rs.70.85

Target Price Rs.90.00

BSE Code 533573

NSE Code APLLTD

Market Cap (Rs Mn) 1335.64

52 Week High/Low 78.95/34.00

Industry Pharmaceuticals

Face Value Rs.2.00

Shares O/S 188515914

EPS 6.90

Book Value 20.95

P/E 10.27

P/B 3.38

Shareholding Pattern

Research Analyst: Vineeta Mahnot [email protected]

� Alembic Pharma continues to maintain its market share of 1.62%

owing to its strong distribution reach, strong field force and

product launches. It has four brands in the list of top 300 brands

of industry i.e. ‘Azithral’, ‘Roxid’, ‘Althrocin’ and ‘Wikoryl’.

� On consolidated basis, the company has posted a rise of about

12% in its net profit at Rs.30.83 crore for the quarter ended June

2012 as compared to Rs.27.56 crore for the same quarter in the

previous year. Total income has increased by 6.72% at Rs.366.77

crore for quarter as compared to Rs.343.67 crore for the quarter

ended June 2011. R&D cost of the quarter was about 14 Crores,

which is about 4.1% of sales. There was the loss of about Rs.3.5

Crores for the quarter largely on the forex denominated loans.

Price increase growth is just above 2%, 9% is about volume

growth and about 4% is new product introduction. EPS worked

out to be 1.64 as against 1.46 for the last corresponding quarter.

� The Domestic formulations business posted sales of Rs.197.24

crores against Rs.172.44 crores with a 14% growth over the

corresponding quarter of the previous year. Export API recorded

sales of Rs.83.48 crores against Rs.60.73 crores registering growth

of 37% while domestic API recorded sales of Rs.30.47 crores

against Rs.34.75 crores in like quarter last year. International

Generic Formulation sales stood at Rs.46.05 crores against Rs.

61.15 crores over the corresponding quarter last year. De-growth

was due to price erosion, product mix and capacity constraint.

� Cumulative ANDA filings as on June 2012 stands at 49 of which

20 are already approved and cumulative DMF filings are at 63.

Valuation

With strong pipeline of ANDA filings, capacity expansion and sharp

growth across business segments and positive guidance by

management; Alembic Pharma Ltd. growth outlook looks strong. We

believe APL is trading at an attractive valuation at 9.03x and 7.25x of

FY13EPS of Rs.7.85 and FY14EPS of Rs.9.77. We initiate a ‘BUY’ on

the stock with a target price of Rs.90 (appreciation of about 27%) with

the long term investment horizon.

www.hemonline.com


Business Details

Established in 1907, Alembic Pharmaceuticals Limited is a leading pharmaceutical company in India. The Company is

vertically integrated with the ability to develop, manufacture and market pharmaceutical products, pharmaceutical

substances and Intermediates. Alembic is the market leader in the Macrolides segment of anti-infective drugs in India.

Alembic's manufacturing facilities are located in Vadodara and Baddi in Himachal Pradesh. The plant at Vadodara has

the largest fermentation capacity in India. The Panelav facility houses the API and formulation manufacturing (both

US FDA approved) plants. The plant at Baddi, Himachal Pradesh manufactures formulations for the domestic and

non-regulated export market. The company has a state of the art Research Centre at Vadodara. APL’s business

segments include:

Active Pharmaceutical Ingredients- API's continue to

make up a significant part of the operations for Alembic

Pharmaceuticals Limited. The fermentation based APIs

are manufactured at its main manufacturing facility

exceeding 3 million sq.mt. Alembic Pharmaceuticals has

an exclusive facility for manufacturing synthetic APIs,

consisting of independent manufacturing blocks for

Macrolides, NSAIDs and other drugs. The API

manufacturing facility at panelav has successfully under

gone inspection of USFDA and EDQM. API covers anti

infectives, cardio-vascular, central nervous system,

musculoskeletal, erectile dysfunction, gastro-intestinal.

Formulations- APL’s extensive range of finished dosage formulations covers every aspect of human life. The basket of

formulations contain more than 150 products in several forms belonging to diverse therapeutic segments from anti-

infective, cough & cold products to cardiovascular and oral anti-diabetics. The manufacturing expertise is available for

almost all dosage forms including sterile as well as non sterile products. Formulations which account for 65% of the

total business today has manufacturing facility at three different places; namely Vadodara & Panelav at Gujarat in the

west & Baddi at Himachal Pradesh in the north. The facility at Panelav enjoys certifications from international

regulatory authorities like MHRA (UK), MCC (South Africa). The formulation business has crossed the boundaries of

India and is well spread to many other countries in overseas. Domestic business includes Generics and branded

formulations.

Herbal nutraceuticals- Alembic Pharmaceuticals Limited has been in the Nutraceuticals business for 50 years. In order

to cater to the changing needs of world Nutraceuticals, the Company has constantly been adding products with their

improvised therapeutic profile.

www.hemonline.com


Strong Industry growth ahead

The Indian Pharmaceutical Industry is currently valued at $20 billion and stands 13th in terms of value. Globally

adjudged as the third largest in terms of volume, the sector is remarkably growing at 14% per year. The growth of the

sector has been fuelled by exporting life-saving drugs to developing countries and supplying quality drugs to the

developed nations at affordable prices. India is one of the world's most lucrative healthcare markets, and is expanding

rapidly. The Indian healthcare industry estimated at US$ 40 billion in 2010 is expected to reach US$ 280 billion by

2020. India is also emerging as a world leader in generic pharmaceuticals production, supplying 20% of the global

market for generic medicines.

The Indian pharma companies are

increasingly filing Abbreviated New

Drug Approval (ANDAs) application for

the approval by the US Food & Drug

Administrations (FDA). As US is the

largest market for generics, increasing

approval by the US FDA gives an

opportunity to penetrate into the market

deeper. Of a total approval of 214

ANDAs by the US FDA in the first-half

of 2012, Indian pharma companies

managed to get around 88 ANDAs (41.1

per cent).

In the June 2012 quarter, eight projects

with an investment of over Rs.752 crore were commissioned as per data sourced from CMIE. In the September 2012

quarter, projects with an investment of over Rs.1,031.7 crore are scheduled to be completed. In 2012-13, projects worth

over Rs.7,957 crore are scheduled to commission. In FY12, India also touched a milestone of being polio free for one

whole year. There is a need to ensure that there is no case of polio infection for the next three consecutive years for

India to celebrate eradication of poliomyelitis.

The Indian drug exports grew by a robust 29.8 per cent in dollar terms in April 2012 as compared to the year ago

month. In rupee terms, exports grew by an even higher 51.5 per cent to Rs.5,718 crore. A sharp depreciation in the

rupee vis-a-vis the USD and strong global demand fuelled the growth in exports during the month. Export to US, the

largest market for generics, grew by a whopping 88.7 per cent in April 2012. Exports to Russia and UK were higher by

76.2 per cent and 29.2 per cent, respectively. Exports to Germany and Brazil grew by 23.9 per cent and 17.9 per cent,

respectively. The Indian pharma companies import bulk drugs and chemicals to manufacture formulations. In rupee

terms, imports were higher by 41.8 per cent to Rs.1,132.9 crore in April 2012.

7 projects announced in June 2012 quarter

Qtr ended New Projects Projects Completed Projects Shelved

(Nos.) Rs. Crores (Nos.)

Rs Crores (Nos.)

Rs Crores

Jun 09 17 1,783 21 791 7 914

Sep 09 9 1,760 9 605 6 450

Dec 09 26 1,184 17 480 4 298

Mar 10 36 2,385 17 1,052 5 320

Jun 10 30 1,470 15 1,459 1 40

Sep 10 12 740 7 788 2 150

Dec 10 18 436 16 3,065 0 0

Mar 11 71 6,230 20 876 3 149

Jun 11 30 255 19 1,554 2 50

Sep 11 12 401 16 899 7 250

Dec 11 2 150 17 530 2 18

Mar 12 8 1,953 13 3,142 3 83

Jun 12 7 1,612 8 752 0 0

www.hemonline.com


CMIE expects drug exports from India to grow by 22.7 per cent to Rs.77,747 crore in 2012-13. A depreciation in the

value of rupee against the USD and pro-generic policies of the developed and developing countries will boost the

growth in exports. The rising healthcare cost has become a concern for developed countries like the US, UK and Japan.

In order to rein in this cost, the governments of these developed countries are switching over to generic drugs from

branded drugs. In case of developing countries like Africa and Latin America as well, the use of generic drugs is

gaining importance due to poor penetration of modern medicines, rising lifestyle diseases, increasing income levels.

Thus, there is a strong demand for generics in the global market. The Indian pharma industry is already the largest

exporter of generics. And their share in global generic market is expected to increase going forward. Expiration of

patents, increase in number of Abbreviated New Drug Approval (ANDAs) filings for approval by the US FDA,

favourable government policies are likely to aid the growth in exports. Around USD 80 billion worth of drugs are

expected to go off-patent in 2012-13.

The Domestic formulations market, valued at

Rs.48,200 crore has grown steadily at CAGR of 14-15%

over the past five years.

In the absence of forex losses in the September 2012

quarter, CMIE expects the profit scenario of the

industry to improve. The PAT is likely to return to

growth. PAT is expected to grow by 60.6 per cent

during the quarter. Sales are expected to grow by 18

per cent in the September 2012 quarter. Strong growth

in exports will drive the growth in sales. The pro-

generic policy of developed markets and strong

demand scenario in the developing market bodes well for the growth in export volumes. Export realisations are likely

to remain high due to depreciation in the value of rupee against the dollar.

The core operating performance is likely to improve during the quarter. The PBDIT is expected to grow by 45.9 per

cent. The PBDIT margin is likely to expand by 330 basis points to 17.4 per cent. Interest expense is likely to account for

17-17.5 per cent of PBDIT as compared to 19.6 per cent in the year ago quarter. Resultantly, the PAT margin is likely to

expand by 270 basis points to 10.3 per cent.

www.hemonline.com


Strong guidance

Alembic’s management plans to achieve 25% to 30% CAGR for the next three years time. The company proposes to be

like 2500 crores topline company in a couple of years about three to four years time. APL expects steady ramp up in

sales in international generic post quarter four of FY13. APIs are expected to grow not more than 15% as the company

is changing the product mix; for the current fiscal API business growth would be 10% net of forex. Domestic

formulation business is expected to 10% to 11% for quarter two of FY13 and by 14% to 15% for the full year. Export

formulation business is expected to put up 225 to 240 crores in FY13 and significant growth to come in FY14. Chronic

segment (contributing about 45% of the sales) which has been growing at 18%-20% for the last couple of years is

expected to maintain the same growth momentum going ahead. For the full year the total revenue growth would be

around 10%. Further, APLs focus will be to improve its operating margins. For the current year (FY13) the company

hopes to continue between 14% and 15% margin and for the next year (FY14); with new plant capacity in place

operating margins are expected to move up by 100 to 125 basis points. Tax rate for the current year would be at 19% to

20%. Further, the company has started repaying its debt levels. It repaid about Rs.25 crores during the quarter ended

June 2012 and expects its debt-equity ratio to go down to 0.6.

www.hemonline.com


Capacity expansion driven growth

Alembic has planned a capex of Rs.120 crore for FY13; out of which about Rs.100 odd crores would be for the new

formulation facility. The company has already spent almost Rs.20 to 25 crores in the previous year and the balance

Rs.80 odd crores is planned to be spent in the current year. This new facility is expected to be up and running by the

end of the fourth quarter. Expanded annual production is expected to increase from 2.6 billion tablets/capsules to 5

billion tablets/capsules. APL also plans to spend about Rs.30 to 35 crores of maintenance capex for balance plants and

R&D spends. APL has filed four ANDA during the quarter ended June 2012. It has also filed its first Brazilian dossier

with ANVISA. During the quarter the company has launched dermatology division with a field force of 100 people.

The company expects that it will further add to the basket of specialty products and growth of the company in the

future. Also, the company has filed Para 4 and desvenlafaxine succinate extended release tablets. This is a first to file

opportunity and it expects to share 180 days exclusivity with other ANDA filers. Going forward, APl expects to file

anywhere between 8 and12 ANDAs every year. It plans to have 55 ANDA filed and 74 DMF filings by FY13. The

company also plans to launch 25-25 new products in branded formulations segment.

www.hemonline.com


Agreement with Accu-Break Pharmaceuticals

Alembic has also entered into development and license agreement with Accu-Break Pharmaceuticals USA (ABP) to

develop new brand products that will use ABP's innovative ACCU break tablet technologies. The first product that

ABP will seek Food and Drug Administration marketing approval for is an Accu-Break-formatted version of the

popular anticoagulant medication warfarin. Further, ABP's patented Accu Break tablets can be split easily by hand

into exact smaller doses to provide maximum flexibility, and to make it easier and safer for patients and caregivers to

adjust their doses. APL will be working on it for the US market and also hopes to extend this platform to other

territories as well in the future. Given for this Accu-Break technology it is ramping up its manufacturing facility, so by

the time it has those approvals in place the company would have adequate manufacturing facility with it. The

company plans to do the filing within the next 9 to 12 months and hopes to get an approval for another 9 to 12 months

after that; so around 24 month for it to be commercialized. This warfarin opportunity would be anywhere between 5

million to 20 million in a five year period. Further, the company plans to enter into new therapeutic segment-

Respiratory therapies which will expand its spread.

www.hemonline.com


Consolidated Profit & Loss Account Rs. Crores

Particulars FY11 FY12 FY13E FY14E

Net sales 1202.05 1466.39 1613.03 1854.98

Growth ---- 21.99% 10.00% 15.00%

Expenditure 1041.81 1245.98 1367.85 1558.18

EBITDA 160.24 220.40 245.18 296.80

Growth ---- 37.55% 11.24% 21.05%

EBITDA margin 13.33% 15.03% 15.20% 16.00%

Other income 0.08 0.44 1.29 1.67

Depreciation & Amortisation 29.59 33.65 37.81 42.81

EBIT 130.73 187.20 208.67 255.66

EBIT margin 10.88% 12.77% 12.94% 13.78%

Interest 23.89 26.21 23.66 25.51

PBT 106.84 160.98 185.01 230.15

Tax 21.46 30.85 37.00 46.03

PAT 85.39 130.13 148.01 184.12

Minority interest/Share of JV/Associates 0.00 0.00 0.00 0.00

Adjusted PAT 85.39 130.13 148.01 184.12

Growth ------ 52.40 13.73 24.40

Net Profit margins 7.10 8.87 9.18 9.93

Extraordinary item 0.00 0.00 0.00 0.00

Reported PAT 85.39 130.13 148.01 184.12

Equity Capital 37.70 37.70 37.70 37.70

Res. & Surplus 259.03 357.30 473.26 619.68

Equity Shares 18.85 18.85 18.85 18.85

EPS 4.53 6.90 7.85 9.77

Ratios

Particulars FY11 FY12 FY13E FY14E

Return on Equity 28.78 32.95 28.97 28.01

Return on Capital employed 22.41 29.18 28.74 28.75

Debt/Equity 0.97 0.62 0.42 0.35

Asset turnover 1.42 1.39 1.37 1.33

Current Ratio 2.13 1.80 1.86 1.95

Book value per share 15.74 20.95 27.10 34.87

www.hemonline.com


Balance Sheet

Rs. Crores

Particulars FY11 FY12 FY1E2 FY14E

Share Capital 37.70 37.70 37.70 37.70

Reserves & Surplus 259.03 357.30 473.26 619.68

Shareholders’ funds 296.73 395.00 510.96 657.38

Borrowings 286.60 246.61 215.07 231.87

Deferred tax Liability 5.37 9.53 9.53 9.53

Sources of funds 588.71 651.13 735.56 898.78

Gross block 433.54 463.02 504.07 570.76 Accumulated Depreciation 161.55 195.20 233.01 275.82

Net block 271.99 267.82 271.07 294.95

Capital work in progress 26.50 58.24 75.62 108.85

Investments 3.26 3.30 8.97 19.49

Projects in progress 0.00 0.00 0.00 0.00

Inventories 219.23 258.74 287.57 331.84

Sundry debtors 201.97 199.33 221.84 263.52

Cash and bank balance 6.29 47.08 49.30 68.32

Other current assets 0.00 0.00 0.00 0.00

Loans and advances 114.40 217.39 262.92 312.32

Total current assets 541.89 722.54 821.64 976.00

Deferred tax asset 0.00 0.00 0.00 0.00 Current liabilities and provisions 254.94 400.77 441.74 500.52

Net current assets 286.95 321.77 379.90 475.49

Misc exp 0.00 0.00 0.00 0.00

Uses of funds 588.71 651.13 735.55 898.78

www.hemonline.com


Consolidated Quarterly Financial Highlights

Rs. Crore

Particulars Q1FY13 Q1FY12 Q4FY12 YoY% QoQ%

Revenues 366.77 343.67 342.61 6.72 7.05

Expenditures 314.50 293.32 301.49 7.22 4.32

Operating Profit 52.27 50.35 41.12 3.81 27.12

Net Profit 30.83 27.56 20.32 11.87 51.72

OPM% 14.25 14.65 12.00 (40bps) 225bps

NPM % 8.41 8.02 5.93 39bps 248bps

EPS 1.64 1.46 1.08 12.33 51.85

Past Price movement of the stock

2011 October November December 2012 February March April May June July August September October

35

40

45

50

55

60

65

70

75

80

35

40

45

50

55

60

65

70

75

80

ALEMBIC PHARMACEUTICALS (72.0000, 72.9500, 68.0000, 70.2500, -0.8000)

www.hemonline.com


www.hemonline.com

[email protected]

HEM SECURITIES LIMITED

MEMBER-BSE,CDSL, SEBI REGISTERED CATEGORY I MERCHANT BANKER

MUMBAI OFFICE: 14/15, KHATAU BLDG., IST FLOOR, 40, BANK STREET, FORT, MUMBAI-400001

PHONE- 0091 22 2267 1000 FAX- 0091 22 2262 5991

JAIPUR OFFICE: 203-204, JAIPUR TOWERS, M I ROAD, JAIPUR-302001

PHONE- 0091 141 405 1000 FAX- 0091 141 510 1757

GROUP COMPANIES

HEM FINLEASE PRIVATE LIMITED MEMBER-NSE

HEM MULTI COMMODITIES PRIVATE LIMITED MEMBER-NCDEX, MCX

HEM FINANCIAL SERVICES LIMITED

NBFC REGISTERED WITH RBI

www.hemonline.com


Disclaimer & Disclosure: This document is prepared for our clients only, on the basis of publicly available information

and other sources believed to be reliable. Whilst we are not soliciting any action based on this information, all care

has been taken to ensure that the facts are accurate, fair and reasonable. This information is not intended as an offer

or solicitation for the purchase or sell of any financial instrument and at any point should not be considered as an

investment advise. Reader is requested to rely on his own decision and may take independent professional advise

before investing. Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt. Limited,

Directors and any of its employees shall not be responsible for the content. The person accessing this information

specifically agrees to exempt Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt.

Limited or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and

further agrees to hold Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt. Limited or

any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by

the person accessing this information due to any errors and delays. The companies and its affiliates, officers, directors,

and employees, including persons involved in the preparation or issuance of this material may from time to time, have

long or short positions in, and buy or sell the securities there of, company (ies) mentioned here in and the same have

acted upon or used the information prior to, or immediately following the publication.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject

securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly

related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement Company Name

1. Analyst Ownership of the Stock No

2. Hem & its Group Company Ownership of the Stock No

3. Hem & its Group Companies’ Director Ownership of the Stock No

4. Broking relationship with company covered No

alembic pharmaceuticals ltd 25...

Documents