IGI Logo

India recovers, US sees pressure

Alembic Pharma (Alembic) reported lower than estimated performance in Q3FY21 with inline margins supported by lower R&D expenses. Revenue from exports, particularly US was below expectation due to competitive pressure in sartans. However, India business delivered healthy growth of 13.6% with growth pick up across specialty therapies. Consolidated revenues grew 8.7% YoY to Rs13.1bn (ISec: Rs14.4bn), adjusted profit grew 24.9% YoY to Rs2.9bn (I-Sec: Rs2.6bn) and EBITDA margin improved 90bps YoY to 27.8% (I-Sec: 28.0%). We remain positive on the long-term outlook considering revival in India growth, focus on complex and niche R&D, and track record of healthy return ratios. However, increased competition in sartans and start of new plants would impact earnings growth in medium term. Retain ADD with a revised target price of Rs1,110/share.

* India growth recovers; weak exports impacts revenue growth: India business revenues recovered well with a growth of 13.6% YoY. Segment wise, acute grew 4.4%, specialty grew 16.6% and veterinary grew 35.1%. Sequentially, US revenues declined 10.2% to US$70mn despite launching seven new products during the quarter and 13 during 9MFY21. This was mainly due to increased competitive pressure in sartans. Management expects to launch ~5 products in Q4FY21 and continue to launch 15-20 products in the US over the next few years, which would aid growth. RoW business grew 14.8% YoY on a low base due to cessation of sales caused by serialisation in EU but it declined 13.2% QoQ. API revenue grew strong 20.9% to Rs2.1bn with continued traction in API supplies.

* EBITDA margin supported by lower R&D: EBITDA margin at 27.8%, declined 260bps sequentially, with 90bps fall in gross margin and higher staff and S,G&A expenses. However, R&D expenses at 10.2% declined 250bps QoQ and 190bps YoY cushioning EBITDA margin to some extent. Most of the expenses have reverted to pre-COVID levels in this quarter and we expect R&D spend to increase in the coming quarters as company is investing in complex and niche products. Additional costs related to new plants would restrict EBITDA margin ~24% over FY22E-FY23E.

* Outlook: We believe near-term (FY22-23E) earnings performance would be impacted by reducing sales of sartans in US, continuous investments in R&D and additional costs (Rs4-5bn annually) when new plants become operational. However, these costs would be absorbed over the medium term as approvals start and capacity utilisation. We expect 14.0% revenue, 9.8% EBITDA and 5.1% EPS CAGR over FY20-FY23E.

* Valuations and risks: We cut EPS estimates by 0-4% for FY21E-FY23E to factor in lower US sales with declining contribution of sartans. Maintain our ADD rating with a revised target price of Rs1,110/share based on 22xSep’22E EPS (earlier: Rs1,151). Key downside risks are: regulatory hurdles and delay in new plant/product approvals.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer