Brokerages are optimistic about Alembic Pharma over its US pipeline, though its Q2FY24 net profit saw only a lukewarm 2.4 percent rise to Rs 137 crore.
Analysts foresee a positive trajectory for Alembic's US business as new facility launches gain momentum over the coming quarters, which is likely to lead to a healthy operating leverage.
The active pharmaceutical ingredient (API) business is also expected to maintain a steady performance, driven by a robust order book.
Alembic Pharma plans to launch over 20 products in FY24, with a focus on oral solids, injectables, and derma segments.
US business to see better days
One of the bright spots in Alembic's performance was its US business, where revenue grew by 6 percent YoY and 14 percent QoQ to Rs 440 crore. The management also highlighted limited price erosion, with the company benefitting from shortages, particularly in the derma segment, during the first half of the fiscal year.
Enthused by these robust trends, brokerages also share a similar optimism for Alembic's future growth trajectory in the US market.
“The ROW (Rest of the World) demand outlook remains strong with product registrations as well as dossier extensions to new markets on track. Upcoming launches from the three new facilities catering to US and ROW markets are likely to aid growth ahead,” brokerage firm BoB Capital Markets stated in a note.
Analysts at Equiris expect acceleration in the US in FY25, with 15-20 launches, including niche products such as the generics of Revlimid (multiple myeloma drug), Sprycel (leukemia drug), and Bosulif (leukemia drug).
The anticipation is that the US business will gradually gain momentum, fuelled by increased product launches from recently commissioned facilities, particularly in injectables, oncology, and ophthalmology. During the quarter, Alembic filed two ANDAs and plans to file 15 more in the year ahead while it also received six approvals.
“Unless revenue picks up in the US from the usual $50-53 million range per quarter, it would be difficult for margin to move beyond the 15-17 percent range,” said analysts at Yes Securities. They add that US revenues depend on the nature of general/oncology injectable approvals over the next 2-3 quarters.
Subdued domestic growth remains a concern
In contrast to its global performance, Alembic faced challenges in its domestic market. The 5 percent YoY growth to Rs 577 crore was attributed to a high base and an acute delayed season during the quarter. Despite this setback, the specialty segment managed to grow by 7 percent YoY, while the acute portfolio experienced an 8 percent YoY decline.
The market-wide slowdown in the acute business was due to a delayed monsoon that resulted in a slower offtake of viral infections, affecting demand. The company’s gynecology and gastrointestinal segments demonstrated impressive growth vis-à-vis the market. Notably, gynecology delivered a robust growth of 17.4 percent in the quarter after key product Isofit contributed revenue worth over Rs 15.1 crore.
The company's profits were affected in the quarter due to new facility costs of around Rs 55 crore. To boost margins, the management plans to control operating expenses and optimise R&D spending (expected to be around Rs 500 crore in FY24) by focusing on high-value complex products. According to Equiris analysts, these measures are expected to result in an 18 percent earnings growth from FY23 to FY26, with profit margins increasing from 13 percent in the first half of FY24 to 19 percent.
However, analysts at Motilal Oswal still have a cautious stance on Alembic Pharma. “We reduce our FY24 earnings estimate by 6 percent, factoring in weak season impact in DF (domestic formulations) segment, and increased marketing and promotional spending in DF segment,” the brokerage said in a report.
Also read: Alembic Pharma Standalone September 2023 Net Sales at Rs 1,478.84 crore, up 9.19% Y-o-Y
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