Hold Alembic Pharmaceuticals; target of Rs 610: Axis Direct

Axis Direct's research report on Alembic Pharmaceuticals

Alembic Pharma’s (ALPM) Q4FY17revenue was in line, butPAT was 11% above our estimatedue to lower tax expense. ALPM expects GST* to be a major challenge for the domestic business in the near term (with distributors expected to keep minimal inventory).

Outlook

While ALPM’s lower USFDA risks (as facilities recently cleared by USFDA) and strong return ratios are positives, we note that it is currently investing in long gestation niche R&D pipeline and building capacities. With impact of complex R&D initiatives visible only from FY19 and rich valuations, we maintain HOLD with TP of Rs 610 (20x FY19E EPS).