Alembic Pharmaceuticals Ltd – Is it a Multibagger Stock ?

In this blog, we will go in details about Alembic Pharmaceuticals Ltd business and its future growth prospects. We will look at Alembic Pharmaceuticals Ltd Share Price Target.

Company Overview:

Established in 1907 with an objective to develop and revolutionize the Pharmaceutical and Drug industry in the Indian subcontinent, Alembic Pharmaceuticals Ltd today is one of the leading pharmaceutical companies in India. The publicly listed entity that manufactures and markets generic pharmaceutical products across the globe has grown by leaps and bounds over the last century. With an emphasis on innovation and technology, the company has established a state-of-the-art research
facility – Alembic Research Centre (ARC)-including formulation research, and 150-bed bio-equivalence facility at Vadodara, Gujarat. Alembic houses 6 Formulation and 3 API manufacturing facilities. Of
the 6 Formulation facilities, 5 facilities are located near Vadodara in Gujarat and one facility is located in Sikkim. Additionally, APL has recently invested in ultra-modern R&D center at Hyderabad. APL is one of the leading players to have invested about 12% of its sales in R&D.

Products & Share Holding Pattern:

Products:

Alembic Pharmaceuticals Ltd presents an extensive range of branded and generic formulations, in compliance with international and national regulations, that cater to diverse therapeutic segments.

The key brands in the market include Azithral, Althrocin, Wikoryl, Roxid, Gestofit, Ulgel, Eternext, etc.

Subsidiaries, Revenue Break Up & Margins :

Subsidiaries:

As of March 31, 2021, the company has ten subsidiaries (including 6 step-down subsidiaries).

Revenue Break up:

Margins:

Key Rationale:

• Strong position – The company is among the top 25 players in the domestic formulations market. Revenue was Rs.1,497 crs in the domestic market in fiscal 2021. Pick-up in domestic revenue on a lower base of the previous fiscal supported sharp growth of 37% in the first-half of 2022. The company has a portfolio of about 200 formulation brands, of which two are among the top 300 domestic formulations brands in India. Growth in the branded formulations segment will be backed by increased contribution from the chronic therapeutic segment and regular product launches, leading to volume growth. Domestic business has 1.5% of market share of IPM with three brands in the top 100. Going ahead, emphasis is on specialty segment with 94% of new launches being specialty products.

• Diversified Revenue – US sales declined by 40% YoY to USD 97mn in 2HFY22. Performance in 2HFY22 was impacted because of incremental competition in Theophylline and Sartans. Revenue contribution from US in Q2FY22 stands at 27%. Four products launched in Q2FY22 and six in H1FY22. Cumulatively, 98 products launched in the US market. Margins are likely to improve on the back of cost rationalization initiatives H2FY22 onwards. Non US sales grew 6% YoY for 1HFY22. Sales are being driven by partnerships and new launches in key markets of Europe, Canada, Brazil, Australia, and South Africa. Revenue contribution from India in Q2FY22 stands at 39%. In that, Specialty- 10%, Acute- 14%, Vet-5%. As on September 30, 2021, Alembic had filed for 214 ANDAs, of which 150 were approved.

• Growth in Domestic Formulations – Alembic pharma recorded a strong growth (37% YoY) in Domestic Formulations (DF) in 1HFY22. This was led by superior performance in cardiology, genecology, anti-diabetic, orthopedic as well as acute therapies. The performance was partly on account of COVID led low base of past year. As the Covid cases have been coming down across the country chronic therapy growth has picked up pace and Alembic has outperformed the market growth.

• Financial Performance – The company has delivered a revenue CAGR of 16% and PAT CAGR of 30% for the past 10 years. The company also has a healthy balance sheet with a very low debt to equity ratio of 0.17. The cash and cash equivalents remain decent with Rs.439 crs. The company incurred sizeable debt-funded capex over the past few fiscals towards specialized generics. The overall capex of around Rs.3000 crs have been incurred for the past 4 years. The management maintains aggressive guidance for capex (Rs.1000 crs for FY22, FY23) and R&D expense at 12.5-13% of revenues for FY22.

Growth Drivers:

The foreign direct investment (FDI) inflows in the Indian drugs and pharmaceuticals sector stood at US$ 17.75 billion between April 2000 and December 2020.

In February 2021, the government approved a production-linked incentive (PLI) scheme for the pharmaceuticals sector from FY21 to FY29. This scheme is expected to attract investments of Rs. 15,000 crs (US$ 2.07 billion) into the sector.

Company is also expected to lead to incremental sales of Rs. 2,94,000 crs (US$40.63 billion) and exports of Rs.1,96,000 crs (US$ 40.63 billion) between FY23 and FY28.

India’s ability to manufacture high-quality, low-priced medicines, presents a huge business opportunity for the domestic industry.

Peer Analysis:

Competitors: Torrent Pharma, Cadila Healthcare, etc. In comparison, Alembic Pharma has strong fundaments and trading cheaper than its listed peers. It is also trading at 45-50% discount while comparing with Industry P/E. So, it has more room to grow from the current valuations supported by its strong fundamentals and business growth

Outlook:

Alembic Pharma recorded highest ever revenues and net profit in FY21 as non US business put up a robust performance during the year. Company registered 17% YoY revenue growth at Rs.5393 crs. The reason behind continued outperformance has been right capital allocation, strong regulatory compliance and ability to capitalize on shortages and limited competition products.

Alembic’s business in the US has registered robust 45% CAGR on the back of around 60 products launches in the last 5 years. The company has made significant investments of around Rs.670 crs or around 12% of the total revenues of FY21 in R&D.

Going Forward, Sales are likely to remain flat in fiscal 2022; steady demand for existing products and new product launches in the international and domestic segments would support growth momentum over the medium term.

Companies Margin is expected to remain healthy at about 20% over the medium term, given continued research and development (R&D) expenses (12-13% of sales) and focus on building abbreviated new drug application (ANDA) pipeline, particularly for specialized generics.

Conclusion:

Alembic Pharma’s rich return ratios, robust balance sheet, excellent margins, strong product pipeline in US and sustained performance in other segments makes room for a re-rating. In addition, Commercialization of international formulation plants F2 (oncology OSD & injectable), F3 (general injectable & ophthalmic) & F4 (new oral solids) will remain the key triggers for the future. Hence, with all the analysis, we think Alembic will reach the target price (TP) of Rs.920, 20x FY22E EPS.

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