RESULTS REVIEW 4QFY18 17 MAY 2018

Alembic Pharma
NEUTRAL
INDUSTRY PHARMA No near term triggers
Alembic Pharma’s (ALPM) revenue grew 16%YoY to too few and far in-between. The key formulation
CMP (as on 16 May 2018) Rs 480
Rs 8.5bn, led by one off payment from the US facility at Panelav is also yet to receive EIR post FDA
Target Price Rs 535 marketing partner to the tune of US$ 5-6mn and inspection, delaying the pending product approvals
Nifty 10,741 higher volumes in rest of the US portfolio in 4QFY18. further. Maintain NEUTRAL with a revised TP of Rs
Sensex 35,388 Although EBITDA grew 29% YoY to Rs 1.7bn, it 535 (18x FY20E EPS).
declined 8% QoQ, largely driven by lower gross Highlights of the quarter
KEY STOCK DATA
margin and higher R&D spend (14% of sales).
Bloomberg ALPM IN ▪ US business: ALPM’s performance in the US picked up
Reported PAT remained flat YoY at Rs 938mn with in 4QFY18, with US$ 5-6mn one off deferred payment.
No. of Shares (mn) 189
relatively higher tax rate in 4QFY18. Adjusted for this payment, US sales still grew
MCap (Rsbn) / ($ mn) 90/1,332 Despite 4Q numbers looking good for ALPM and we sequentially. The company has filed 25+ ANDA in FY18
6m avg traded value (Rsmn) 45 have been constructive on ALPM’s long-term story, and likely to file similar number of products in FY19.
STOCK PERFORMANCE (%) we strongly believe that the significant benefits from
52 Week high / low Rs 615/468 the recent investments are back-ended and will be
▪ The green field oral oncology plant and derma plant
are ready to get commissioned in FY19. Filings should
3M 6M 12M realized from 2HFY20. Lucrative ANDA filings in the start from 4QFY19. Oncology injectable and general
Absolute (%) (16.9) (7.1) (21.1) US will begin only in 4QFY19 and launches injectable plants will also get completed by 1HFY19.
Relative (%) (20.9) (13.9) (36.8) thereafter. In the meanwhile, we expect the
company’s elevated cost structure to keep EBITDA ▪ Other takeaways: (1) Mgmt guided for higher than
SHAREHOLDING PATTERN (%)
margin under pressure with operating expenses market growth for India formulation segment, (2)
Promoters 72.7 Likely to incur Rs 6bn on Capex in FY19. (3) To spend Rs
increasing without commensurate revenues flowing
FIs & Local MFs 3.9 4.5-5bn on R&D in FY19.
in. The impact of this pressure will be exacerbated in
FPIs 10.5
FY19 with growing depreciation and interest cost. ▪ Near-term outlook: Unexpected approvals for the US
Public & Others 13.0 market remain the only trigger for the stock.
Especially,when the material launches in the US are
Source : BSE
Financial Summary
(Rsmn) 4QFY18 4QFY17 YoY (%) 3QFY18 QoQ (%) FY17 FY18 FY19E FY20E
Net Sales 8,533 7,378 15.7 8,400 1.6 31,052 31,308 35,100 39,822
EBIDTA 1,732 1,346 28.7 1,875 (7.6) 6,147 6,431 7,020 9,000
APAT 938 930 0.8 1,306 (28.2) 4,032 4,126 4,162 5,605
Diluted adj. EPS (Rs) 5.0 4.9 0.8 6.9 (28.2) 21.4 21.9 22.1 29.7
AmeyChalke P/E (x) 22.4 21.9 21.7 16.1
amey.chalke@hdfcsec.com RoE (%) 23.0 20.7 19.7 21.1
+91-22-6171-7321 Source: Company, HDFC sec Inst Research# Consolidated
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 ALEMBIC PHARMA:RESULTS REVIEW 4QFY18

Quarterly Financials Snapshot (Consolidated)

ALPM’s top line grew 16%YoY Particulars 4QFY18 4QFY17 YoY (%) 3QFY18 QoQ (%)
to Rs 8.5bn in 4QFY18, largely Net Sales 8,533 7,378 15.7 8,400 1.6
led by 29%YoY growth in Material Expenses 2,638 2,005 31.6 2,264 16.5
international business Employee Expenses 1,573 1,379 14.1 1,474 6.7
R&D Expenses 1,208 1,123 7.6 981 23.1
Other Expenses 1,382 1,526 (9.5) 1,805 (23.5)
R&D expenses were higher at EBITDA 1,732 1,346 28.7 1,875 (7.6)
Rs 1.2bn in 4QFY8 Depreciation 316 218 264
EBIT 1,417 1,128 25.6 1,611 (12.1)
Other Income 6 9 3
Interest Cost 13 18 8
Although opex has declined PBT 1,410 1,118 26.0 1,606 (12.2)
sequentially, we expect Tax 385 165 298
strong ramp up in the coming Minority Interest 87 23 3
quarters. RPAT 938 930 0.8 1,306 (28.2)
EO Items (Adj For Tax) - - -
ALPM is commissioning five APAT 938 930 0.8 1,306 (28.2)
Source: Company, HDFC sec Inst Research
facilities for the US market in
FY19 with revenues to start Margin Analysis
coming in from 2HFY20 4QFY18 4QFY17 YoY (bps) 3QFY18 QoQ (bps)
Material Expenses % Net Sales 30.9 27.2 374 27.0 396
Employee Expenses % Net Sales 18.4 18.7 (25) 17.6 88
R&D Expenses % Net Sales 14.2 15.2 (106) 11.7 248
Other Expenses % Net Sales 16.2 20.7 (449) 21.5 (530)
EBITDA margin contraction EBITDA Margin (%) 20.3 18.2 206 22.3 (202)
was a factor of higher R&D Tax Rate (%) 27.3 14.7 1,258 18.5 879
spending APAT Margin (%) 11.0 12.6 (162) 15.5 (456)
Source: Company, HDFC sec Inst Research

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 ALEMBIC PHARMA:RESULTS REVIEW 4QFY18

Revenue: Growth Aided By US Business Up-Tick Domestic Business: In-Line With Expectations
Top line growth was aided by Revenue (Rs mn) YoY growth (%) Domestic formulations rev. (Rs mn) YoY growth (%)
one off income in the US and 24.7 17.2
13.7
growing volumes for existing 17.9
15.7 6.3 6.1 6.3
products (0.4)
9.0 1.8 2.6

(9.5)
We expect the domestic (13.5) ( 12.0)
(15.9)
business to grow in-line with 6.3 7.3 8.7 7.7 7.4 6.4 7.9 8.4 8.5
(21.1)
the market in FY19 2.7 3.0 3.6 3.1 2.9 2.4 3.9 3.5 3.0

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

International generics
performance was boosted by International Biz: Pick-Up Driven By Market Share EBITDA Margin: Affected By Higher R&D
strong traction in the US and Gains And One Off Income
one off income.
International Generics (Rs mn) YoY growth (%) EBITDA (Rs mn) EBITDA margin (%)
22.7 22.7 22.3
80.0 21.6
20.4 20.3
18.9 18.2
41.2 15.8
33.9
22.3
EBITDA margin declined 3.1
(10.8)
sequentially due to lower
( 26.4)
gross margin and higher R&D
( 44.9)
cost 1.4 1.6 1.8 1.5 1.3 1.0 1.8 1.7
1.8 3.0 3.4 2.8 2.6 2.7 2.5 2.9 3.4 1.9
( 39.4)

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18
4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

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 ALEMBIC PHARMA:RESULTS REVIEW 4QFY18

Segmental Quarterly Performance

(Rsmn) 4QFY18 4QFY17 YoY (%) 3QFY18 QoQ (%)
Like-to-like growth in the
Domestic Formulations 3,040 2,860 6.3 3,490 (12.9)
domestic business would be International Business 3,520 2,730 28.9 3,110 13.2
8%YoY API and others 1,980 1,810 9.4 1,800 10.0
Total 8,540 7,400 15.4 8,400 1.7
Source: HDFC sec Inst Research
Despite weak growth in this Assumptions
quarter, the mgt has
FY16 FY17 FY18 FY19E FY20E
maintained that they aim to
Domestic formulations 11,873 12,550 12,740 14,367 16,206
grow the domestic business
Growth (%) 7.6 5.7 1.5 12.8 12.8
above the market rate International Business 14,647 12,360 12,060 13,978 16,197
Growth (%) 151.7 (15.6) (2.4) 15.9 15.9
API Business 5,283 6,400 6,510 7,158 7,876
Growth (%) 53.8 (1.5) - 13.4 13.5
Total 31,803 31,310 31,310 35,503 40,279
Growth (%) 53.8 (1.5) - 13.4 13.5
Source: HDFC sec Inst Research

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 ALEMBIC PHARMA:RESULTS REVIEW 4QFY18

Peer Valuations
Mcap CMP Adj EPS (Rs/sh) P/E (x) RoE (%)
Reco TP
(Rsbn) (Rs/sh) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E
Sun Pharma 1,135 472 NEU 544 26.0 14.0 20.1 27.2 18.2 33.8 23.4 17.3 17.9 9.1 12.3 14.8
Cipla 450 560 NEU 631 12.5 18.4 25.7 33.2 44.8 30.4 21.8 16.9 8.4 11.2 14.0 15.8
Cadila Healthcare 394 384 BUY 523 14.5 11.3 16.4 22.7 26.4 33.9 23.4 16.9 23.5 15.4 19.0 22.3
AurobindoPharma 352 602 BUY 835 39.3 35.2 46.0 52.2 15.3 17.1 13.1 11.5 27.6 20.0 21.4 20.0
Lupin 345 767 BUY 1,219 33.4 38.0 39.6 59.7 23.0 20.2 19.4 12.8 12.2 12.7 12.5 16.8
Dr Reddy's Labs 339 1,994 NEU 2,320 72.7 64.7 116.0 161.0 27.4 30.8 17.2 12.4 9.5 8.4 13.9 17.0
Divi's Labs 309 1,165 NEU 1,100 39.9 33.4 44.9 51.7 29.2 34.9 26.0 22.5 22.0 15.7 18.8 19.0
Alkem Laboratories 241 2,015 BUY 2,124 74.6 62.6 85.0 106.2 27.0 32.2 23.7 19.0 21.9 15.8 18.8 20.2
Torrent Pharma 230 1,357 BUY 1,748 51.2 38.9 62.0 79.5 26.5 34.9 21.9 17.1 22.1 14.9 21.5 23.2
Glenmark 146 518 BUY 781 29.6 18.5 30.0 43.8 17.5 28.0 17.3 11.8 18.1 9.8 14.0 17.5
Jubilant Life Sciences 127 816 BUY 1,060 37.0 46.6 65.5 80.4 22.1 17.5 12.5 10.1 18.0 19.3 22.4 22.5
Alembic Pharma 90 479 NEU 535 21.4 23.3 25.3 31.8 22.4 20.6 19.0 15.1 23.0 21.2 19.7 21.0
DishmanCarbogenAmcis 57 352 BUY 480 9.0 9.9 15.2 22.4 39.0 35.6 23.1 15.7 3.0 3.3 4.9 6.8
Strides Shasun 45 499 BUY 980 34.0 27.7 39.0 59.4 14.7 18.0 12.8 8.4 13.1 4.6 12.9 17.1
Granules India 25 97 BUY 177 7.5 6.0 8.5 11.8 12.9 16.2 11.4 8.2 21.0 13.7 15.3 18.9
Neuland Labs 6 711 BUY 1,065 42.6 11.0 28.9 62.3 16.7 64.8 24.6 11.4 12.8 2.2 5.5 11.1
Source: HDFC sec Inst Research

We have cut our estimates to

Change In Estimates (Consolidated)
factor in incremental impact of
Previous New % Chg
higher opex, depreciation cost Rsmn
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
and interest payments in
FY19/FY20 Net Sales 30,780 35,168 40,178 31,308 35,100 39,822 1.7 (0.2) (0.9)
EBITDA 6,525 7,491 9,281 6,431 7,020 9,000 (1.4) (6.3) (3.0)
APAT 4,357 4,759 6,019 4,126 4,162 5,605 (5.3) (12.6) (6.9)
Source: HDFC sec Inst Research

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 ALEMBIC PHARMA:RESULTS REVIEW 4QFY18

Income Statement (Consolidated) Balance Sheet (Consolidated)

Year ending March (Rsmn) FY16 FY17 FY18E FY19E FY20E As at March (Rsmn) FY16 FY17 FY18E FY19E FY20E
Net Revenues 31,232 31,052 31,308 35,100 39,822 SOURCES OF FUNDS
Growth (%) 52.2 (0.6) 0.8 12.1 13.5 Share Capital - Equity 377 377 377 377 377
Material Expenses 7,811 8,581 8,856 9,302 10,354 Reserves 15,597 18,634 21,824 24,884 29,386
Employee Expenses 4,729 5,588 6,228 6,950 7,447 Total Shareholders Funds 15,974 19,011 22,201 25,261 29,763
SG&A Expenses 5,554 6,465 5,683 7,371 8,243 Minority Interest - 1 3 1 1
R&D Expenses 3,071 4,270 4,110 4,458 4,779 Long Term Debt - - 5,000 5,000 3,000
EBITDA 10,067 6,147 6,431 7,020 9,000 Short Term Debt 1,137 802 2,078 1,500 1,000
EBITDA Margin (%) 32.2 19.8 20.5 20.0 22.6 Total Debt 1,137 802 7,078 6,500 4,000
EBITDA Growth (%) 150.0 (38.9) 4.6 9.2 28.2 Net Deferred Taxes 427 369 354 369 369
Other Non-
Depreciation 722 830 1,055 1,350 1,550 413 698 603 1,011 1,206
EBIT 9,345 5,318 5,376 5,670 7,450 currentLiabilities&Provns
Other Income (Including EO TOTAL SOURCES OF FUNDS 17,951 20,882 30,240 33,142 35,339
Items) 73 25 70 80 100 APPLICATION OF FUNDS
Interest 54 51 34 350 300 Net Block 7,081 7,994 10,928 15,578 18,528
PBT 9,363 5,291 5,413 5,400 7,250 CWIP 1,225 4,660 9,108 9,000 6,500
Tax (Incl Deferred) 2,161 1,222 1,204 1,188 1,595 Investments 534 502 416 497 497
Minority Interest (2) (37) (83) (50) (50) Other Non-current Assets 333 501 711 711 711
RPAT 7,201 4,032 4,126 4,162 5,605 Total Non-current Assets 9,173 13,656 21,163 25,786 26,236
EO (Loss) / Profit (Net Of Tax) 4,059 - - - - Cash & Equivalents 4,508 1,596 899 282 1,345
APAT 3,142 4,032 4,126 4,162 5,605 Inventories 5,698 6,328 7,339 6,371 6,241
APAT Growth (%) 11.0 28.3 2.3 0.9 34.7 Debtors 3,505 3,375 5,263 4,808 5,455
Adjusted EPS (Rs) 16.7 21.4 21.9 22.1 29.7 Other Current Assets 1,402 1,912 4,746 5,320 6,036
Source: Company, HDFC sec Inst Research Total Current Assets 10,604 11,615 17,348 16,499 17,732
Creditors 5,657 5,232 7,593 7,645 7,943
Other Current Liabilities &Provns 678 753 1,577 1,780 2,031
Total Current Liabilities 6,335 5,985 9,170 9,425 9,973
Net Current Assets 4,270 5,629 8,178 7,074 7,758
TOTAL APPLICATION OF FUNDS 17,951 20,882 30,240 33,142 35,339
Source: Company, HDFC sec Inst Research

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 ALEMBIC PHARMA:RESULTS REVIEW 4QFY18

Cash Flow Key Ratios

Year ending March (Rsmn) FY16 FY17 FY18E FY19E FY20E FY16 FY17 FY18E FY19E FY20E
Reported PBT 9,363 5,291 5,413 5,400 7,250 PROFITABILITY (%)
Non-operating & EO items - - - - - GPM 75.0 72.4 71.7 73.5 74.0
Interest expenses (18) 27 (36) 270 200 EBITDA Margin 32.2 19.8 20.5 20.0 22.6
Depreciation 722 830 1,055 1,350 1,550 APAT Margin 10.1 13.0 13.2 11.9 14.1
Working Capital Change 1,219 (1,242) (2,854) 1,511 (489) RoE 24.5 23.0 20.0 17.5 20.4
Tax Paid (1,974) (1,280) (1,218) (1,173) (1,595) RoIC (or Core RoCE) 60.9 26.5 18.0 14.8 18.0
OPERATING CASH FLOW ( a ) 9,311 3,625 2,359 7,358 6,916 RoCE 21.0 21.0 16.2 14.0 17.1
Capex (3,086) (5,047) (8,436) (5,893) (2,000) EFFICIENCY
Free cash flow (FCF) 6,225 (1,422) (6,077) 1,465 4,916 Tax Rate (%) 23.1 23.1 22.2 22.0 22.0
Non-operating Income 73 25 70 80 100 Fixed Asset Turnover (x) 2.9 2.5 1.9 1.6 1.5
INVESTING CASH FLOW ( b ) (3,010) (4,990) (8,280) (5,893) (1,900) Inventory (days) 66.6 74.4 85.6 66.3 57.2
Debt Issuance/(Repaid) (1,121) (335) 6,275 (578) (2,500) Debtors (days) 41.0 39.7 61.4 50.0 50.0
Interest Expenses (54) (51) (34) (350) (300) Other Current Assets (days) 16.4 22.5 55.3 55.3 55.3
FCFE 5,127 (1,751) 320 537 2,216 Payables (days) 66.1 61.5 88.5 79.5 72.8
Share Capital Issuance - - - - - Other Current Liab&Provns (days) 7.9 8.9 18.4 18.5 18.6
Dividend (882) (882) (992) (1,103) (1,103) Cash Conversion Cycle (days) 49.9 66.2 95.3 73.6 71.1
Others (2) 279 40 52 50 Debt/EBITDA (x) 0.1 0.1 1.1 0.9 0.4
FINANCING CASH FLOW ( c ) (2,055) (1,547) 5,209 (2,083) (3,953) Net D/E (x) (0.2) (0.0) 0.3 0.2 0.1
NET CASH FLOW (a+b+c) 4,246 (2,912) (713) (618) 1,063 Interest Coverage (x) 172.1 103.9 158.1 16.2 24.8
EO Items, Others - - - - - PER SHARE DATA (Rs)
Closing Cash & Equivalents 4,508 1,596 883 282 1,345 EPS 16.7 21.4 21.9 22.1 29.7
Source: Company, HDFC sec Inst Research Dividend 4.0 4.0 4.5 5.0 5.0
Book Value 84.7 100.9 117.8 134.0 157.9
VALUATION
P/E (x) 28.8 22.4 21.9 21.7 16.1
P/BV (x) 5.7 4.8 4.1 3.6 3.0
EV/EBITDA (x) 8.7 14.6 15.0 13.8 10.3
EV/Revenues (x) 2.8 2.9 3.1 2.8 2.3
OCF/EV (%) 10.7 4.0 2.4 7.6 7.4
FCF/EV (%) 7.1 (1.6) (6.3) 1.5 5.3
FCFE/Mkt Cap (%) 5.7 (1.9) 0.4 0.6 2.4
Dividend Yield (%) 0.8 0.8 0.9 1.0 1.0
Source: Company, HDFC sec Inst Research

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 ALEMBIC PHARMA:RESULTS REVIEW 4QFY18

RECOMMENDATION HISTORY
Date CMP Reco Target
Alembic Pharma TP
3-May-17 605 BUY 675
800
20-Jul-17 552 BUY 635
750
10-Oct-17 503 BUY 650
700
8-Nov-17 515 NEU 555
650
600
11-Jan-18 563 NEU 590
550
31-Jan-18 567 NEU 605
500
13-Apr-18 500 NEU 575
450
17-May-18 480 NEU 535
400 Rating Definitions

May-18
May-17

Nov-17

Feb-18 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Jan-18
Oct-17

Mar-18
Aug-17

Dec-17
Jun-17
Jul-17

Apr-18
Sep-17

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 8
 ALEMBIC PHARMA:RESULTS REVIEW 4QFY18

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 ALEMBIC PHARMA:RESULTS REVIEW 4QFY18

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