>ALEMBIC PHARMACEUTICALS LIMITED: “Erstwhile Alembic is now a pure pharma play”

Investment Rationale

■ The recent demerger of the erstwhile Alembic into Alembic and Alembic Pharma has positioned the latter as a pure pharma play, helping it to focus on its growth momentum and we believe that this `12bn enterprise trading at 4.8xFY'13E earnings offers good value in the pharma space.

■ The `7bn domestic formulation franchise is today no longer just driven by its leadership in the Macrolide segment of antibiotics but by life style segments growing at rates faster than the category growth.

■ Domestic branded portfolio enjoys good brand equity with prescribers and its three macrolide brands figure among the Top100 brands with even its brands like Zeet and Wikoryl from the mature cough and cold segment figuring among the Top300 brands.

■ APL’s `2bn formulation exports to regulated markets, which contributes around 21% to the total revenues is gaining traction with 41 ANDA filings and 56 DMF filings and is expected to make additional contribution to its revenue basket with gradual approval in products.

■ As a part of ongoing restructuring, APL is aggressively ramping up its capacity in order to cater the increasing demand for drugs in the regulated markets. It will invest `1 bn in a new drugs facility, which will not only boost the productive capacity of the pharma major but will also soar up its revenue basket.

■ We expect APL to end this fiscal with revenues of `14.5bn and a net profit of `1.2bn and forecast a 30% growth in profits next fiscal which would be driven by a slightly muted revenue growth of 16% and aided by a lower debt and interest outgo.

Valuation

Alembic Pharmaceuticals is now a pure pharma play with strong foothold in the domestic formulation business and increased focus on regulated markets. The formulation business is expected to escalate at a higher pace and revenues from the US generic market are expected to scale up on the back of product approvals going forward. The company to its credentials has 41 ANDA filings and 56 DMF filings.

APL trades at 6.3xFY'12E and 4.8xFY'13E earnings and we recommend a BUY with a one year price target of `75. Good earnings visibility and reasonable valuations support our investment argument.

To read the full report: ALEMBIC PHARMACEUTICALS

RISH TRADER