Buy Alembic Pharma; target of Rs 160: Firstcall Research

Firstcall Research report on Alembic Pharma:

Alembic Pharmaceuticals has reinvented itself over the last few years. In API business, the company intends to exit low margin products and graduate to new profitable products with sizeable potential. The company has also reduced its long term borrowing from Rs. 2142.80 mn to Rs. 1166.70 mn as on 31st March 2013. The long term loan repaid constituted mainly of foreign currency loans from banks. Repayment of long term loans shows financial stability and long term focus of the company’s management. The CAGR of branded formulations business and international generics stands at 13% and 55% over the last three year from 2010-2013.

Alembic Pharma plans to focus on existing branded formulations business through effective pan- India distribution network and therapy based marketing and by pushing ahead acute and chronic segments like anti – infectives and cough & cold medications. The company also plans to launch 20-25 new products in the coming quarters in this segment. The company is expecting a CAGR of 15-18% in the coming quarters. Alembic Pharma intends to position itself as a cost effective quality manufacturer in international generics industry. The company intends to increase its annual production of tablets and capsules from 2.6 billion to 5 billion in 2013-14. Over the next five years, products generating $142 billion are expected to go off patents which present huge opportunity for launching new generic products. Alembic Pharmaceuticals expects a CAGR of 30% in international generics.

“The net sales of Alembic Pharma rose by 16.47% in Q1 FY14 compared to the corresponding quarter in the previous year. Net profit jumped by 51.28% on consolidated basis from Rs. 308.30 mn in Q1 FY14 to Rs. 466.40 mn in the current quarter. The EBDITA increased by 36.22% in Q1 FY14. The Net profit margin and EBDITA margin rose by 252 and 243 basis points respectively. Other income of the company fell by 91% in the current quarter.”

"At the current market price of Rs. 141.55, the stock P/E ratio is at 13.92 x FY14E and 12.07 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.10.17and Rs. 11.73 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 19% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 9.44 x for FY14E and 8.32 x for FY15E."

"Price to Book Value of the stock is expected to be at 3.84 x and 2.91 x respectively for FY14E and FY15E. We expect the company’s growth story to continue in the coming quarters also. We recommend ‘BUY in this particular scrip with a target price of Rs 160 for Medium to Long term investment."

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