>ALEMBIC: Result Update: 1QFY2011

Alembic reported below expectation numbers for 1QFY2011 impacted by de-growth on the export API front. The domestic formulation sales grew by 5.5% yoy on the back of the restructuring exercise undertaken by the company over the last one year, which improved working capital management resulting in lower debt levels. We maintain a Buy on the stock as de-merger of the company into - Alembic and Alembic Pharma - is a long-term positive as it will unlock value for both the businesses and pave the way to rope in future investors.

■ Results below estimates: Alembic reported revenues of Rs279.1cr (Rs290.6cr), down 4.0% yoy on the back of subdued performance in the export API segment and lower-than-expected growth in the domestic formulations segment. Alembic reported lower-than-estimated OPM of 9.9% (10.3%). Net profit came in at Rs11.5cr (Rs12.3cr), down 6.4% yoy on account of lower sales during the quarter. On a positive note, interest cost decreased by 45.4% yoy to Rs4.4cr (Rs8.1cr) as debt levels stood lower at Rs360cr from Rs408cr in FY2010.

■ Outlook and Valuation: We have valued Alembic on SOTP basis, with a Target Price of Rs74 valuing Alembic Pharma at Rs47 per share. Alembic’s 30% stake in Alembic Pharma has been taken at Rs11 per share and the loss-making API business at Rs5 per share. We have conservatively valued the land asset of 70 acre at Rs500/sq. ft resulting in Rs11 per share.

To read the full report: ALEMBIC