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Work in progress for GLP-1 products

Alembic Pharma (ALPM) delivered a better-than-expected operational performance in 3QFY24. A healthy show in formulation exports and the domestic formulation (DF) segment supported growth in sales/EBITDA. ALPM continued to improve the base of its US generics business. Robust demand led to strong off-take in non-US exports.

We raise our earnings estimates by 2%/3%/4% for FY24/FY25/FY26 to factor in a) superior execution in animal healthcare segment, b) new launches and increased reach in non-US exports, c) controlled R&D spending, and d) better operating leverage. We value ALPM at 22x 12M forward earnings to arrive at a TP of INR910.

Compared to two years of earnings decline over FY21-23, we expect ALPM to end FY24 on a strong note with 12%/33% EBITDA/earnings growth YoY. Further, we expect a 16% earnings CAGR over FY24-26, led by a strong performance in its core markets, DF and exports. However, we maintain our Neutral rating as this earnings upside is adequately captured in the current valuation.

Increased opex outweighs product mix benefits

Sales grew 8% YoY to INR16.3b (our est: INR15.9b). DF sales grew 9% YoY to INR6b (37% of sales). Excluding US generics, exports grew 32% YoY to INR2.7b (17% of sales). US generics sales rose 10% YoY to INR4.7b (USD58m; 29% of sales). API sales declined 11% YoY to INR2.9b (18% of sales)

Gross margin expanded 190bp YoY to 71.7% due to a superior product mix and lower RM costs.

However, EBITDA margin contracted by 20bp YoY to 16.3%, due to higher employee costs/other expenses (+210/+250bp YoY as % of sales), offset by lower R&D expenses (down 250bp as % of sales).

Consequently, EBITDA grew 7% YoY to INR2.6b (our est: INR2.3b).

Adj. PAT grew 37% YoY to INR1.8b (est. INR1.4b) due to lower tax expense.

For 9MFY24, revenue/EBITDA/PAT grew 11%/13%/34% YoY to INR47b/ INR6.7b/INR4.4b.

Highlights from the management commentary

ALPM delivered better-than-industry growth in Gynecology, Gastrointestinal, Anti-Diabetic, and Ophthalmology.

The company launched 11 products in 3QFY24 and targets to launch five more in the US generics segment in 4QFY24.

ALPM is also working on GLP-1 products as it also has peptide capability.

USD57m is the new base for the quarterly sales run rate in the US generics segment.

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