Alembic Pharma falls 5% after board nod to Rs 1,150-cr impairment charges

Alembic Pharmaceuticals: The pharma company has registered a 29 percent year-on-year decline in consolidated profit at Rs 122 crore for quarter ended December FY23, impacted by weak operating performance and lower other income. However, revenue from operations at Rs 1,509 crore increased by 19 percent YoY in the same period with growth across verticals as US business grew by 10 percent to Rs 432 crore and India segment reported a 12 percent growth at Rs 545 crore.

The share price of Alembic Pharmaceuticals declined 5 percent on Friday to a fresh 52-week low of Rs 476.30 on the BSE after the company’s board approved impairment charges of Rs 1,150 crore for three of its under-construction manufacturing plants in Gujarat.

The charges came after an impairment review of Capital Work in Progress (CWIP) assets of three new facilities in Gujarat: Facility 2 in Panelav (oncology injectables and oral), Facility 3 in Karakhadi (ophthalmic and general injectables) and Facility 4 in Jarod (oral solid dosages).

The company stated that the Covid-19 pandemic caused delays in the USFDA approval for its manufacturing facilities. As a result, the company is concerned that its estimates of cash generation from these facilities will need to be significantly revised downwards, partly due to price erosion in the US generics market and also due to rising global interest rates. Consequently, the Capital Work In Progress (CWIP) amount for these manufacturing facilities is now higher than the amount recoverable.

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The charges will be written off the Statement of Profit and Loss of the FY22-23 and utilised from the general reserve to maintain the accumulated unconditional distributable profits. The company believes that utilising these reserves will allow for the creation of additional shareholder value, subject to the discretion of the Board of Directors in accordance with the relevant provisions of the Act and other applicable laws.

After this charge, the company’s total write-off stands at Rs 1,490 crore, which also includes Rs 340 crore of write-off due to the buyout of its partner stake Aleor Derma in March last year.

ICICI Securities believes that this move bodes well for future return ratios and profitability, one time impairment impact notwithstanding. “We expect more impairments in the due course,” it said.

Brokerage firm JM financial also believes that the return ratios can improve due to a lower base and that most of the balance sheet clean-ups, write-offs and capex cycle are now complete.

The share price of Alembic Pharma declined around 32 percent in the last one year. At 11.38 am, the scrip was trading down 0.10 percent at Rs 502.70 apiece on the BSE.