See 100-120 bps margin improvement in FY14: Alembic Pharma

Alembic Pharma, which reported whooping 115 percent year-on-year growth in net profit is hopeful to increase operating margin by 100-120 basis points in current financial year on the back of strong growth in international and domestic generic business.

“I think the margin improvement will be driven by our international generic business growth which is expected to be very strong in the current year post our commissioning of the new facility and the specialty segments in the domestic market, which are doing well,” RK Baheti, CFO, Alembic Pharmaceuticals told CNBC-TV18 today.

The Gujarat based company hopes to get an additional revenues of Rs 300-350 crore in FY14 once the new facility becomes full operational. The company expects to grow domestic generic business by 15 percent and international generic business by 30-35 percent in 2013-14.

Alembic reported a net profit of Rs 43.6 crore and its consolidated revenue grew by 10 percent to Rs 376.6 crore in quarter ended March. Its domestic formulations' sales jumped 12 percent Y-o-Y to Rs 207.52 crore while international generics sales grew by 54 percent to Rs 77.66 crore in March quarter.

Below is the verbatim transcript of the Baheti’s interview.

Q: After finishing the year on such a strong note, what are you expecting for FY14?

A: March 2013 was a good quarter. Overall last couple of years have been good, strong performance by the company. We believe that all the hard work, which we have done in international market and in research, all the disciplined approach we have adopted in the domestic market should continue to give us a growth momentum in the coming year i.e. 2013-2014.

Q: Can you give us an idea as to what benefits – I believe you gave up some of your active pharmaceutical ingredients (API) business because it is low margin, is that going to improve margins in the current year, how much of a margin improvement can you guide?

A: Some of the commodities business which have become very price sensitive – we have given up. But at the same time we are using our API facility maximum for the value added products for the regulator market  (US market) as well as for our captive use. So this will contribute to the margin improvement. But I think the margin improvement will be driven by our international generic business growth which is expected to be very strong in the current year post our commissioning of the new facility and the specialty segments in the domestic market, which are doing well. So, we expect margins to improve by 100-125 bps in the current year.
 
Q: You said that your new facility in Gujarat will be completed shortly. How much does that add in terms of capacity and how much will it add to revenue in FY14?

A: The existing capacity for our USFDA formulation plant was about 2.5 billion tablets capsules. Once the new plant which is fully commissioned or fully operational, it will increase the capacity to almost 5 billion. So that would double the capacity. In terms of revenue and the full capacity utilisation, it can give us Rs 300-350 crore of additional revenue but for 2012-2013, we expect incremental revenue to be about Rs 125-140 crore.

Q: Could you tell us why your international API has gone down by 21 percent in the quarter gone by and what is the outlook on that?

A: We have given up some of the commodity API business and we are selling more to the domestic customer but for the regulated markets; as well as we are using it for our captive use because our own international generic programme is doing very well.

Q: Now that your Gujarat facility is coming on board, will you contemplate more expansions?

A: Not in the coming years, not in 2013-2014 but surely next year once the new plant achieves a certain capacity utilisation like 60 percent or so, we have to start looking for new facilities.

Q: Any guidance on the domestic as well as on the export formulation side for FY14?

A: We should grow the domestic business by about 15 percent in terms of topline and as far as international generics are concerned we expect it to grow by around 30-35 percent. The two businesses plus a slightly smaller growth in API, we expect the company to grow by about 20 percent on topline this year.

Q: Could you provide us an update on how many abbreviated new drug application (ANDA) launches perhaps you will have in FY14 or upcoming?

A: We already have about 15-16 products in the US market. We expect at least 8-10 products to be launched in the US market this year.