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US challenges offset domestic recovery…

About the stock:

Alembic Pharma operates in international generics (54%), domestic branded (28%) and API (18%).

* Exports contribute 69% of sales (US~74%), domestic contributes 31% of sales (Chronic~69% & Acute~31%)

* It has filed 212 ANDA and has 146 approvals with 94 product launches

Q1FY22 Results:

Alembic reported skewed Q1FY22 results.

* Sales declined 1.1% YoY to | 1326 crore

* EBITDA in Q1FY22 was at | 235 crore, down 42% YoY with margins at 17%

* Consequent PAT was at | 164.5 crore (down 45.4% YoY)

What should investors do?

Alembic’s share price has grown by ~1.7x over the past five years (from ~| 573 in June 2016 to ~| 984 levels in June 2021).

* We maintain our HOLD rating on the stock

Target Price and Valuation: We value Alembic at | 885 i.e. 20x P/E on FY23E EPS

Key triggers for future price performance:

* Commercialisation of international formulation plants F2 (Oncology OSD & Injectable), F3 (General Injectable & Ophthalmic) & F4 (new oral solids)

* Maintains aggressive guidance for capex (| 1000 crore for FY22 and FY23) and R&D 12.5-13% of revenues for Fy22

* Expects to launch 15 products in the US in FY22  Consistency of performances in Indian branded formulations

Alternate Stock Idea:

Apart from Alembic, we like Torrent Pharma

* The company’s portfolio is finely balanced between India, Brazil, Germany and the US with India being the leader

* BUY with a target price of | 3290

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