Hold Alembic Pharma; target of Rs 615: ICICI Direct

APL’s exports generic business (contributed 51.6% to revenues in FY16) grew at 56% CAGR in FY12-16 to Rs 1650.8 crore driven by strong traction in the US (75% of export generic sales). The US traction was on the back of consistent product launches including limited competition products.

OutlookHigh gAbilify continued to weigh on FY17 numbers and Q3 was no exception. The numbers were further impacted by a price reduction in the domestic market and demonetisation. With the announcement of aggressive R&D and capex plans, the management has signalled the strategy for the next five to six years, especially on the US front. This includes a foray into niche areas like oncology, injectables, derma, etc. This, we believe, is fraught with a new set of challenges and the benefits are most likely to be back-loaded. Immediate cash-burn is likely to weigh on sentiments in the near term. We have ascribed a target price of Rs 615 based on 20x (22x earlier) FY19E EPS of Rs 30.6.