Growth visible across segments, pricing pressure in US a concern – Alembic Pharma

Growth visible across segments, pricing pressure in US a concern – Alembic Pharma

Update on the Indian Equity Market:

The market witnessed the continuation of the bearish movement due to acute turmoil in Chinese stock markets. Nifty was down 37 points or 0.24% at 15,709.

Among the sectoral indices, METAL (+1.22%) AND IT (+0.21%) were gainers while PSU BANK(-1.88%), AUTO (-0.93%) and REALTY (-0.79%) were top losers. Among the stocks, BHARTIARTL (+5.04%), TATASTEEL (+2.81%), and SBILIFE (+2.16%) were the top gainers while KOTAKBANK (-2.59%), DRREDDY (2.55%) and TATAMOTORS (-2.2%) were the top losers.

Alembic Pharma sees growth across segments; says pricing pressure in the US a concern

Edited excerpts of an interview with Mr Pranav Amin, Managing Director at Alembic Pharmaceutical with CNBCTV18 on 28th July 2021:

Alembic Pharma posted its Q1FY22 earnings. EBITDA, margins and profit have all come in below street estimates, the US generics business has seen a steep fall as well. Pranav Amin

  • Street estimates of EBITDA Margin for 1QFY22 were ~23-24% for the quarter v/s actual reported margin of 18%. The market was disappointed with the performance and stock tanked ~11% post results. Mr Amin explained the reason for the margin decline. He said that US business since the last five years has had a CAGR of about 25 per cent. Part of the growth in the US business was due to the Sartan opportunity, where the company did well.
  • Also there have been a lot of disruptions in the market. Since November or December, disruptions were seen and there was a lot of supply in the market, which has led to pricing pressure in the US market. So that is what has broadly caused the dip in the margins for this quarter.
  • US business declined by 38% YoY reason being the price erosion. Volumes were flat but pricing pressure was seen in other products as well other than the sartans in US business which led to the decline in US business.
  • Guidance on US business – In the last 5-6 quarters the average US revenue has been ~$70mn because of the sartans. Moving forward, the company has withdrawn all guidance. As far as the business is concerned, very robust growth is seen in the Indian market and the company expects it to continue.
  • API business grew by 6% YoY in 1QFY22, last year there were a lot of disruptions in API business because of COVID especially from China. The European business also grew very well, last year, had a growth of 13 per cent. So by and large, all the other businesses are doing okay. It’s just the US that is facing pricing pressure.
  • The company has withdrawn the EPS guidance for FY22 because
    • the markets have been quite dynamic, as is seen on some of the pricing in the Sartans and some of the other products.
    • There’s still no clarity on the FDA inspection of new facilities.
    • Competition is witnessed in some of the other larger products of the company.
  • India Business – India Business does not have a COVID-19 related portfolio. COVID-19 has been tougher for Alembic as most of the portfolio was not used for COVID-19 treatment. Speciality and Acute portfolios have shown good growth. The company expects to grow faster than the market.
  • The company has guided investors to launching 15 products in the US and management wants to stick to it. Strategically company is working on cost optimization, renovating portfolio and seeing where volumes can be maximized for some of the products to remain competitive in US markets. The filing and launches are on track.

 Asset Multiplier Comments

  • The near-term outlook remains muted due to significant erosion in US sales which would also weigh on margin. Further, inspections at new plants have been delayed due to COVID-19 which has led to delay in the launches of complex generics
  • The company’s plan to launch 15 products in the US and consistent performance in Indian branded formulations will help Alembic to perform going forward.

Consensus Estimate (Source: tikr. com and market screener websites)

  •  The closing price of Alembic Pharma was ₹ 796/- as of 28-Jul-21. It traded at 21.5x/17.2x/14.6x the consensus EPS estimate of ₹ 37.6/47/55.5 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 965/- implies a PE multiple of 17x on FY24E EPS of ₹ 55.5/-.


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