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Strong RoW, API sales offset by US decline…

Q4 revenues grew 6.1% YoY to | 1280 crore with strong growth in RoW formulations and API segment being partly offset by 17.7% YoY decline in US sales to | 475 crore. Domestic formulations grew 4.7% YoY to | 358 crore. RoW sales grew a robust 76.5% YoY to | 233 crore whereas API segment grew 38.1% YoY to | 214 crore. EBITDA margins declined 45 bps YoY to 26.7% with lower gross margins being mostly offset by lower employee cost. EBITDA grew 4.3% YoY to | 342 crore. Adjusted PAT grew 6.5% YoY to | 251 crore.

Domestic growth to remain steady…

Domestic sales comprise 28% of FY21 revenues with higher contribution from specialty (~57% of domestic sales). However, despite having an established set-up, growth (FY16-21 CAGR of ~5%) has lagged the industry growth curve. Alembic is consciously focusing on this aspect by overhauling distribution channels (defocusing on trade generics). Overall, we expect domestic formulations to grow at 11% CAGR in FY21-23E to | 1845 crore.

New launches to drive US; impending capex to the fore…

US sales (40% of FY21 revenues) grew at ~12% CAGR in FY16-21 to | 2165 crore on the back of consistent product launches including limited competition products. Despite being a late entrant, the company has done reasonably well with a product basket of 212 ANDA filings (73 pending final approval). It has already demonstrated required capabilities by securing limited competition approvals like gAbilify (CNS), gExforge (CVS), gCelebrex (Pain), gMicardis (CVS) and Sartans. Moderated by decline in Sartans due to higher competition and pricing pressure we expect US sales to register 5.3% FY21-23E CAGR to | 2400 crore supported by ~15 launches every year.

Valuation & Outlook

Q4 topline performance was in line with expectation (albeit skewed), impacted by decline in US sales. Profitability was better-than-expected due to lower-than-expected staff costs, other expenditure (ex-R&D) and a lower tax rate. Owing to pricing pressure across the Sartan portfolio, the management expects US quarterly sales to remain subdued in the near term. On the domestic front, the management expects a steady run rate, going forward.

Additionally, in the API segment with Chinese players returning to the market, the management expects some sales moderation but expects steady growth. Apart from this, the management is aggressively spending on R&D and manufacturing for US oncology, injectables, derma segments which provides growth optimism for medium to long-term but may impact near term margins. We maintain HOLD rating and arrive at a target price of | 1055 (unchanged) based on 20x FY23E EPS of | 52.7.

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