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Steady quarter; margin recovery awaited

ALPM’s 2Q revenue was in line with JMFe driven by non-US formulations. Domestic business dragged growth due to delayed acute season/ high base. New facility costs (c. INR 550mn) resulted in weaker EBITDA margin, leading to a 7% PAT miss. US performance was better than expectations as moderate price erosion, new launches and shortages benefited the company. As launches from new facilities ramp up, which could take a few quarters, we expect healthy operating leverage to play out as costs are now largely in the base. We expect API business to deliver steady performance on the back of a robust order book. We maintain BUY with a TP of INR 915.

* US to ramp up gradually: US revenues grew 6%YoY/ 14%QoQ to INR 4.4bn. The management indicated that the US business continues to witness limited price erosion. In 1H, the company benefitted from shortages, particularly in the derma segment. We expect the US business to gradually ramp up on the back of increased new launches from newly commissioned facilities (injectables, oncology, opthal). ALPM has planned 20+ launches in FY24, primarily consisting of oral solids (10-12) and the balance being ophthalmic injectable and derma. During the quarter, it filed two ANDAs and plans to file 15 in the year, and received six ANDA approvals. The pending ANDAs are a mix of injectables (12-15), Derma (5-10) and OSD.

* Domestic business to outperform: Domestic revenue missed JMFe by 6%, growing 5% YoY to INR 5.8bn due to high base/delayed acute season during the quarter. Specialty segment grew 7% YoY whereas the Acute portfolio declined (-8% YoY). The recent launches meet the management’s expectations and the company is planning new launches in 2H across key segments. Animal health business grew 32% YoY to INR 980mn. ALPM currently operates in the livestock and poultry market and has established a new division with a headcount of 350. The company is a leader in Hematinic and Antibiotic market with Sharkoferrol, Moxel, Xceft and Mceft brands. At present, it has 5,000+ MRs with 20 marketing divisions.

* Ex-US beat JMFe, API in line: Ex-US international formulations grew at a steady 17% YoY to INR 2.5bn (7% beat). New launches and territory expansion are expected to sustain this momentum and drive growth ahead. API revenue was broadly in line with JMFe, growing 10% YoY to INR 3.2bn. The growth was mainly on account of high offtake and better product mix, and given the robust order book this should sustain. ALPM filed one DMF this quarter, taking the total to 132 DMFs.

* Key financials: Alembic’s Revenue/EBITDA/PAT of INR 15.9bn/ 2.1bn/ 1.4bn grew +8%/- 11%/+2% YoY and were in line/-21%/-7% vs. our estimates and +2%/ -13%/ -2% vs. consensus estimates. Gross margin improved ~110bps YoY to c. 71.1% (JMFe: 70%), with the management guiding for levels of 70%, going forward. EBITDA margin declined 270bps YoY to 13.1% (JMFe: 16.4%) on higher other expenses. R&D expense of INR 1.2bn was 7.6% of sales. Debt to equity stood at 0.18.

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SEBI Registration Number is INM000010361