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Await US capex monetization

Result Synopsis

Alembic clocked 11% growth in 4Q, on the back of strong growth in India business which continued its outperformance vs IPM. US business delivered a surprisingly good quarter driven by inventory stocking, one-time sales of few products and market share ramp up in existing business. Company also acquired remaining 40% of Aleor business making it a wholly owned subsidiary; company wrote off Rs1.88bn in Aleor R&D with another Rs1.5bn to be w/o in FY23

Alembic Pharma guided to US$55mn as the base US business (with 4Q at US$74mn) even as 1Q is likely to exceed the base number as one-off opportunities still persist. We factor in R&D write off in Aleor of ~Rs1.5bn in FY23 and also reduce US sales estimate US$250mn to US$230mn in FY23 and US$300mn in FY24 (US$320mn earlier). Cut in FY24 US sales is on the back of our sense that none of the major tentative approvals so far are likely to translate in to major revenues and also accounting for management observation about slow to ramp up market share despite healthy ~15 launches expected in FY23. Believe US business has bottomed out in previous quarter while India should clock ~11% growth in each of next 2 years. We have cut FY23 EPS by 29% in FY23 (including ~Rs1.5bn of R&D write off in Aleor as guided in 4Q, ex-write off EPS cut of 10%) and FY24 EPS by 14% to account for slower US ramp up. We roll over an unchanged 25x target multiple to FY24 EPS estimate. Reckon stock returns would be back ended as street looks to get comfort on US business exceeding US$60-65mn per quarter (annualizing >US$250mn) before rerating begins; near term we are looking at subdued 1Q in domestic on high base of Azithromycin of last year. Believe stock has always been a play on US capex monetization and our 25x PE multiple reflects our optimism on US ramp up beyond FY23.

Result Highlights

Revenue up 11% YoY to Rs 14,157mn, much higher than our estimate of -5% YoY.

Strong growth in India business (25% YoY) and US business (17% YoY and 41% QoQ) key drivers of growth.

Gross margin fell by 30bps QoQ and was down 270bps YoY to 72.7% due to sharp increase in RM costs YoY

EBITDA margins fell sharply by 880bps QoQ to 11.3% in Q4, as significant increase in other expenses due to Aleor write off

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