YES Securities is bullish on Alembic Pharma has recommended buy rating on the stock with a target price of Rs 1100 in its research report dated May 19, 2020.
YES Securities' research report on Alembic Pharma
We upgrade Alembic Pharma to a conviction BUY with a revised PT of Rs1,100, the highest on the street, as we raise multiple to 25x FY22E; we reckon market would reward stocks with visibility of revenues and profits and such companies would trade at a wide premium to sector averages. This is evident in Pharma where, despite recent rally, few stocks still command a premium to sector valuation as earnings visibility remains robust. Alembic trades at a discount to peers like Torrent and Dr Reddys’ even as earnings comfort in the medium term remains high. Company is set to monetize Rs20bn worth of capex over next 3 years as filings commence from new facilities. This would drive a 20% cagr surge in ex-Sartans US revenues to touch US$450mn in FY24E. Moreover, domestic business has bottomed out in FY20 with our confidence based on robust performance in Q4 to end FY20 on a strong note. While we remain cognizant that gross margins would give up recent gain as sartans opportunity recede, EBIDTA would pick up pace especially beyond FY22, as filings gain scale and approval.
We upgrade to conviction BUY with a target of Rs1,100 for an upside of 28%; our conviction on the business is reflected in the multiples we assign while we remain ~7% ahead of consensus on FY22 earnings. Key risks include deceleration in US business and slower than market growth in domestic business which would also adversely impact our assumptions on margin.
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