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8/14/2019 Timesfinancials india

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TimesFinancials Ltd./Research 1

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CMP: 121 (9th May 2013) Target: Rs.

Alembic Pharmaceuticals Ltd

SE Code 533573

SE Code APLLTD

Mkt Cap (Rs.bn) 22.83eta 0.61

2 week High 126.8

2 week Low 47.5

vg volume (BSE) 68912

vg volume (NSE) 145611

ace Value (Rs) 2

quity (Rs mn) 377

Despite the seasonality factor, results for Q4FY13 were above

expectations. With the two key growth drivers generic dosages

exports and domestic formulation sales doing well during the

quarter, the topline growth and OPM has been impressiveImprovement in margins and cash flows leading to lower financia

costs is a continuing story. The highlight of the quarter was the

above industrial growth rate of the domestic dosages biz as the

share of chronic medications continues to rise. More importantly

among the larger divisions, GI, CV and gynaecology have been

growing at a faster pace than the industry. Exports of dosages to

developed markets would receive a fillip in FY14 once its

aggressive Rs.1bn capex gets commissioned fully during H1FY14

This would usher in a high growth phase during FY14 and FY15

as the pace of ANDA approvals too would gather pace.

Good prospects ahead:

The quarter was marked by a sharp growth in generic dosages export

due to partial commissioning of the capacity expansion. Branded

dosages exports suffered a setback as a part of the capacity was used for

preparing samples for filings across the U.S, E.U and Latin America.

The domestic dosages business is set for a high teen growth as the shareof the chronic segment (currently at 51% and growing at 31%) increases

The APIs biz is the bulwark of the company. With 59 DMF filings, its

able to cash on one-time opportunities from innovator companies.

Once the enhanced dosages capacity goes on stream, the managemen

expects a 35-35% CAGR for exports over the succeeding three years

During FY14 EBIDTA margin is expected to grow by 100-125bps.

Investment potential High growth, low risk

Owing to the better business clarity, we are taking a two year call. Overthe FY13-15 period, we expect the company to post a sales CAGR of18.1% (Rs.15.17bn to Rs.21.16bn). Due to margin improvement, weexpect EBIDTA to post a CAGR of 29% (Rs.2.52bn to Rs.4.19bn). PATis forecasted to post a 32.5% growth (Rs.1.65bn to Rs.2.9bn). Our 12-18months target is Rs.185 (12XFY15EPS; at the lower end of its peer-set), a 52.5% appreciation from the current level.

mish Mishwani

alyst: Healthcare

[email protected]

ww.TimesFinancials.com


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TimesFinancials Ltd./Research

Quarterly Results [Consolidated]

Rs.Mn Q4FY12 Q4FY12 Growth Q3FY13 Growth Q2FY13 Growth Q1FY13 Growth FY13 Growth

Net Sales 3766 3408 10.5% 3688 -3.3% 4058 2.2% 3661 6.6% 15173 3.8%

Other opg income 15 16 -3.2% 5 -39.2% 11 1.9% 7 75.0% 37 -7.7%

Operating Income 3781 3423 10.4% 3693 -3.4% 4069 2.2% 3668 6.7% 15210 3.7%

COGS 1671 1530 9.2% 1506 -20.5% 1886 -2.7% 1744 1.6% 6807 -3.8%

% Net Sales 44.4% 44.9% 40.8% 46.5% 47.6% 44.9%

Excise duty 17 31 -30 12 11 10

Employees cost 508 431 17.8% 495 14.5% 486 20.3% 450 7.7% 1938 15.0%

% Net Sales 13.5% 12.7% 13.4% 12.0% 12.3% 12.8%

R&D Expenses 220 221 -0.6% 217 122.5% 160 9.8% 139 14.9% 737 25.7%

% Net Sales 5.8% 6.5% 5.9% 4.0% 3.8% 4.9%

Other expenditure 709 801 -11.4% 810 13.2% 878 1.7% 801 18.1% 3199 4.6%

% Net Sales 18.8% 23.5% 22.0% 21.6% 21.9% 21.1%

Operating Profit 656 408 60.7% 694 1.3% 647 7.0% 523 3.8% 2519 14.3%

% Net Sales 17.3% 11.9% 18.8% 15.9% 14.2% 16.6%

Other income 1 4 -82.5% 34 2 120.0% 2 175.0% 39 793.2%

PBDIT 657 412 59.3% 728 6.1% 649 7.2% 525 4.1% 2559 15.9%

Interest 18 54 -66.0% 39 -44.4% 31 -55.9% 57 -15.2% 146 -44.4%

Depreciation 86 89 -3.1% 89 9.4% 88 4.4% 87 5.7% 350 3.9%

PBT 552 269 105.0% 601 12.2% 530 17.6% 381 7.4% 2063 28.2%

% Net Sales 14.6% 7.9% 16.2% 13.0% 10.3% 13.6%

Current tax 102 53 93.3% 121 25.6% 106 15.9% 73 1.1% 401 28.5%

Effective tax rate 18.4% 19.5% 20.2% 19.9% 19.2% 19.5%

Deferred tax 14 14 -0.7% -3 -9.1% -1 -97.1% -1 10

PAT 437 203 115.1% 483 9.2% 425 11.7% 308 11.8% 1652 27.0%

% Net Sales 11.6% 6.0% 13.1% 10.5% 8.4% 10.9%

Equity 377 377 377 377 377 377

EPS 9.3 4.3 10.2 9.0 6.5 8.8

v Owing to the partial commissioning of the enhanced dosages capacity, YoY growth for

Q4 at 10.5% was the best during the fiscal, notwithstanding the seasonality factor.

v Due to a 11.4% dip in other expenses at Rs.709mn, operating margin for the quarter was

a respectable 17.3%. For the fiscal too, at 16.6%, its grown by 160bps.

v The pre-tax profit of Rs.552mn for the quarter means that for the past three quarters, it

has been in the Rs.530-600mn range. A continuous decline in net interest expenses had a

large role to play in this improvement.

v Relatively lower tax rate of 18.4% for the quarter has led to a PAT of Rs.437mn. Thus,

for the past three quarters, it has been in the Rs.425-483mn range.


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Highlights:

Cumulative ANDA filings stand at 57 with approvals at 24. Cumulative DMF filings

stand at 60. During the quarter, it had two ANDA filings and three approvals. DMF

filings during the quarter too were two.

The enhanced dosages capacity was partially commissioned during the quarter. Itsexpected to run at full capacity of 5bn (from the current 2.6bn) dosages by the first half of

FY14. Of the Rs.1.02bn spent on capex in the current fiscal, Rs.870mn was for the

dosages expansion.

NDA for Desvenlafaxine HCl XR tabs was approved during the quarter. This is a

bioequivalent of Pfizers Pristiq (Sales of $573mn), though not AB rated. APLs first 505

B2 application, it has been partnered and launched by Ranbaxy.

During the year, three dossiers were filed with ANVISA and two were filed in the EU.

DER has improved significantly from 0.9 in March 2012 to 0.33.

Sales break-up:

Rs.Mn Q4FY13 Q4FY12 Growth Q3FY13 Growth Q2FY13 Growth Q1FY13 Growth FY13 Growth

Formulations 2980 2526 18.0% 3037 11.3% 3136 1.0% 2508 2.4% 11662 7.9%

Domestic 2075 1845 12.5% 2276 14.5% 2539 11.9% 1972 14.4% 8863 13.2%

Export - ROW 129 177 -27.5% 150 -3.7% 87 -27.9% 76 -33.3% 441 -22.2%

Export - Reg 777 504 54.2% 611 4.4% 510 -28.5% 461 -24.7% 2358 -2.5%

Bulk 787 873 -9.9% 670 -38.3% 910 10.3% 1140 19.3% 3506 -6.1%

Domestic 250 192 30.3% 250 33.5% 334 51.5% 305 -12.3% 1138 20.8%

Export - ROW 537 681 -21.3% 420 -53.3% 576 -4.7% 835 37.5% 2367 -15.2%

Total 3767 3399 10.8% 3707 -2.8% 4045 3.0% 3648 7.2% 15167 4.3%

In the domestic market, it maintained its market share at 1.79% by virtue of the 13.2%

growth during the year. The chronic and acute segments posted a 27% and 3% growth

respectively vis a vis 11% and 3% for the industry. In recent months, industrial growth

rate has declined from 15-16% to 11%.

During the year, it launched a dermatology division, with eight products. This addition to

the basket of specialty products is expected to propel future growth.

Exports to the regulated markets spurted by 54% to Rs.777mn during Q4. However, for

the fiscal, sales at Rs.2.36bn was down by 2.5%.

During the quarter, desvenlafaxine base XR tablets was launched in the U.S.

Recent generic approvals

Product Dosage (mg) Approval date Branded sales ($Mn) Opportunity

Modafinil 100, 200 Oct12 1200 Limited competition

Valsartan+HCT Multiple Mar13 1600 High competition

Irbesaratan Multiple Oct12 2100 High competition

Irbesaratan+HCT Multiple Oct12 351 High competition


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Domestic biz on the growth path:

v During Q4FY13, while the share of anti infectives in domestic sales has declined by

500bps to 36%, that of specialty therapies has risen by a whopping 600bps to 51%.

Comparative growth rate

Segment FY13 FY12

MS Inds Alembic Inds Alembic

Anti Infective 4.4% 3.0% 2.0% 11.0% 8.0%

Gastro 2.6% 11.0% 25.0% 11.0% 28.0%

Cough and cold 5.1% 8.0% 8.0% 9.0% 6.0%

Cardio 1.4% 12.0% 42.0% 16.0% 22.0%

Gynaecology 2.3% 5.0% 30.0% 11.0% 6.0%

Ortho 1.2% 7.0% 6.0% 11.0% 10.0%

Diabetology 1.3% 23.0% 40.0% 25.0% 26.0%

Nephro/Uro 2.2% 15.0% 63.0% 17.0% 25.0%

Opthal 1.6% 7.0% 48.0% 15.0% 13.0%

v Among the top five therapies, the anti infective and gynaecology segments have been

witness to a sizable degrowth. While the company has fared badly in the former, in the

gynaecology segment, it has posted a 30% growth vis a vis a 5% growth for the segment.

It has managed to post a very good growth rate in the GI and CV segments but the cough

and cold segment continues to be a drag with high single digit growth rates.

v Among the emerging segments for the company, while the orthopaedics segment has

posted a 400bps degrowth, the diabetology and urology/nephrology segments havecontinued to outpace the industry with the company outpacing the segments by a huge

margin.

v In a nutshell, as the share of anti infectives and cough and cold in overall domestic sales

declines, the overall growth would outpace the industry growth by a wider margin.

v A dermatology division with eight products was launched during the year.

v Future investments are earmarked for the faster growing segments.

Con-call highlights:

v During the quarter, it posted a forex gain of Rs.32mn. Gains for the fiscal was Rs.45mn.

v Milestone payment for FY13 was around Rs.250mn. Since a part of this was on account

of desvenlafaxine (received in Q3FY13), the management has guided for a lower figure

in FY14.

v Of the regulated market sales, the N.American market accounts for 60% of revenues. US

generic sales would drive sales over the next two years. The management expects exports

to regulated markets to grow by 30-35% over the next 2-3 years. Apart from the spurt in


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US sales, the outlook for U.K and German too are good. The management expects to

launch 8-10 products every year over the next three years in the U.S market. During the

current fiscal, it launched seven products.

v Going forward, the emphasis would be on niche products and NDA filings. Apart from

oral solids, the current focus is on Para-IV challenges to be followed by filings in niche

and high technology areas like inhalations and dermatology. For FY14, it targets 10-12

ANDA filings, 3-4 of which would be FtoFs. During FY13, itd three FtoFs. A 505 b-2

application is expected in the case of Warfarin over the next 12 months based on the

Accubreak technology.

v R&D expenses, currently around 5% of sales is expected to gradually inch upto 6-7% of

sales.

v It has great expectations from Modafinil, which was launched recently owing to the

limited competition. Valsartan too, which is slated for launch in the next few months

holds good promise due to the large opportunity. The biggest growth driver for the

current fiscal, DesVenlafaxine has seen the shipment of a portion of the launch quantityduring Q4FY13. It expects sales to kick in from Q1FY14 with a gradual gain in market

share.

v In the case of EU and Brazil, it expects traction in FY15 when three products are

expected to be launched in both the markets, either on its own or through partners. It

already has three launches in Australia.

v Apropos the domestic dosages, the growth in the GI segment was led by sartans, while in

the case of gynecology, Ovigyn-D has fared very well. That apart, the ophthalmology

division has attained critical mass and is expected to start generating profits. New product

launches (25 during the fiscal) contributed 3.2% to sales.

v The emphasis is on enhancing productivity. During the past twelve months, it hasrecruited only 100 MRs for the new derma division. The current MR strength is around

3,000 with the supervisory strength being another 600. For FY14, domestic dosages is

expected to grow at 15%.

v The API biz has struggled owing to the high base effect and the greater emphasis on

captive consumption. It expects this division to post a 10-15% growth.

v Debt decreased sizably during FY13 as it managed to close out inter group transactions.

It expects to become debt free in the current fiscal. The capex for FY14 is estimated at

Rs.600mn. In order o prepare for the future growth, it has plans of setting up a new unit

from FY15 at an outlay of Rs.1.5-2bn for international generics.

v It expects a 100-125 expansion in operating margins year on year.


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Balance sheet (Consolidated)

Rs.Mn FY13 FY12

Equity 377 377Reserves 4652 3573Networth 5029 3950

Secured loans 833 1071Unsecured loans 701 1384

Total debt 1534 2456

Total capital employed 6563 6406

FA 3765 3261

Investments 33 33

Inventories 2668 2587SDs 2329 1993Cash and bank 161 471Loans and advances 1522 2174Total Cas 6680 7226CLs 3092 3607Prov 684 411Total CLs 3776 4018NWC 2905 3208

DTA -139 -95

Total assets 6564 6406

Gearing 0.3 0.6Current ratio 1.8 1.8Asset turnover 4.0 4.5ROCE 33.1% 29.2%RONW 32.9% 32.9%Inventories 119 111SDs 56 50Loans and advances 64 91Mcap 22999EV 24372

EV/EBIDTA 9.6

Valuation:

Owing to the better business clarity, we are taking a two year call. Over the FY13-15period, we expect the company to post a sales CAGR of 18.1% (Rs.15.17bn toRs.21.16bn). Due to margin improvement, we expect EBIDTA to post a CAGR of 29%(Rs.2.52bn to Rs.4.19bn). PAT is forecasted to post a 32.5% growth (Rs.1.65bn toRs.2.9bn). Our 12-18 months target is Rs.185 (12XFY15EPS; at the lower end of itspeer-set), a 52.5% appreciation from the current level.

Coverage History with adjusted price

Date of coverage CMP Recommendation Price target

3rd

October 2011 41.3 BUY 65.0

19th October 2011 45.2 BUY 65.0

2nd

February 2012 41.9 BUY 65.0

26th

April 2012 53.3 BUY 85.09th

August 2012 58.8 BUY 100.019th

October 2012 69.5 BUY 100.022ndJanuary 2013 69.4 BUY 100.0

9th

May 2013 121.0 BUY 185.0


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Domestic formulation sales (ORG IMS)

Therapy Brand FY11 (9M) FY12 FY'13 Growth

Anti InfectivesAzithral 728 1189 1332 12.0%

Azithral XL 54 78 43.0%Althrocin 619 919 928 1.0%

Roxid 443 577 543 -6.0%Zofix 71 191 187 -2.0%

Megaclav 48 135 167 24.0%Fort.Proc.Peni 83 80 -3.0%

Furobid 41 58 41.0%Cepime-O 56 51 -9.0%

Anti diabetic

Glisen 51

Glisen-MF 76 118 55.0%Glisen-PM 42 53 25.0%

Glimser 28

Glimser-P 37 51 36.0%Vogo 19 46 70 51.0%

GLZ 11

Popfix 9

CardioRevas 82 46 52 13.0%

Revas-H 55 60 9.0%Atecard 56 59 57 -4.0%Tetan 55 64 78 22.0%

Tetan-H 50 71 42.0%Tetan-AM 39 58 49.0%

Tellzy 45 52 87 68.0%Tellzy-H 41 71 72.0%

Tellzy-AM 38 67 74.0%

Rosave 21 44 65 48.0%

Gastro

Ulgel 200 252 295 17.0%Ulgel-A 103 138 34.0%Rekool 198 132 159 20.0%

Rekool-D 180 225 25.0%Rekool-L 76 136 78.0%

Livfit 88 176 168 -5.0%Levogastrol 33 58 66 14.0%Urdiogem 19

Pentab-D 85 107 26.0%

Gynaec

Gestofit 62 131 267 103.0%Protinules 48 101 123 22.0%Ricahr XT 46 82 73 -11.0%Cycloset 45 80 83 4.0%Ovigyn 37

Ovigyn-D 47 98 110.0%

Ortho

Osteofit 70

Magadol 50 86 91 6.0%Nimegesic 46

Etrik 34 54 65 19.0%Axogard 17


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Thera Brand FY11 (9M) FY12 FY'13 GrowthRespiratory

Wikoryl 253 517 522 1.0%Zeet 235 256 274 7.0%

Bro-Zeet 135 146 8.0%

Glycodin 64 112 105 -6.0%Laveta 38

Laveta-M 44 62 39.0%Ephedrex 30

Vitamins and tonics

Sharkoferrol 104 219 221 1.0%Hermin 39 83 100 20.0%

Cadx 10

Diax 8

Vitaresp 3

Lactonic 67 96 43.0%Al5Zyme 39 55 41.0%

Nephrology

Geriflo 49 55 60 9.0%Geriflo-D 59 77 31.0%

Darif 6Fulflo 3

Grand Total 4653 9706 10968 13.0%

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