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Outperformance in the US drives an earnings beat in 1Q Limited competition products improve the medium-term outlook

* Alembic Pharma (ALPM) delivered a better-than-expected financial performance with a 12%/19%/13% beat on revenue/EBITDA/PAT for 1QFY27. Strong growth in export formulations and the API segment resulted in a positive earnings surprise for the quarter.

* Specifically, the US sales, which were tracking an average quarterly run rate of USD55-60m for the past four years, surged to USD83m in 1QFY27, driven by limited competition product launches.

* The domestic formulation (DF) segment experienced a gradual uptrend in the specialty sub-segment. The animal health segment sustained its robust growth path in 1QFY27 as well.

* We broadly retain our estimates for FY27/FY28 as improved traction in the US segment (backed by product launches) and currency tailwinds are offset by higher depreciation and tax rates. We value ALPM at 17x 12M forward earnings to arrive at our TP of INR845.

* We expect the earnings growth momentum to strengthen over FY26-28, driving 25% earnings CAGR. This growth will be aided by product launches and scaling up of existing products in focus markets of the US and India. However, the current valuation provides limited upside, and hence we reiterate our Neutral rating on the stock.

Operating leverage partially offsets GM pressure

* ALPM’s sales grew 25.7% YoY to INR21.5b (our est: INR 19.1b).

* Gross margin contracted 500bp YoY to 71.2%.

* However, EBITDA margin contracted at a lower rate of 100bp YoY to 15.4% due to better operating leverage (employee expenses/other expenses down 265bp/150bp as a % of sales).

* The R&D spending was INR1.9b (8.7% of sales).

* EBITDA grew 18% YoY to INR3.3b (our est: INR2.8b).

* Adj. PAT grew 12% YoY to INR1.7b. (our est: INR1.5b).

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