Alembic Pharma LTD.: Result Update

Alembic Pharma Ltd.
RESULT UPDATE 21st July,

nd
2017
22 May 2017
India Equity Institutional Research II Result Update Q1FY18 II 21st July, 2017 Page 2
Alembic Pharma Ltd. Weak start for the year
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 540 INR 580 7% 105202 HOLD Pharma
Result highlights
The company has delivered weak growth in the first quarter FY18 due to lower revenues from its US business along with slow growth of its
domestic business. In Q1 FY18, the company reported revenues of INR 6,482 Mn which down by 12% Y-o-Y and a de-growth of 12.6% Q-o-Q. The
decrease in revenues was due to lower revenues from the international markets which were at INR 2,820 Mn in Q1-2018 versus INR 3,090 Mn in
Q4-2017. The domestic business has also witnessed a declining trend due to GST rollout with sales at INR 2,360 Mn in Q1-2018 versus INR 2,990 Mn
in Q4-2017
EBIDTA stood at INR 1,014 Mn which was down by 565 bps y-o-y and 250 bps q-o-q. Increase in higher employee cost and R&D led to decline in
margins. PAT was at INR 634 Mn which was down by 38.8 % y-o-y and 33.5% q-o-q.PAT Margin for the quarter stood at 10.3% down by 248 bps q-o-q
and 392 bps y-o-y.
The company has launched 5 new products in the US and it plans to launch 10 products in FY18. During the quarter the company has made 4DMF
filings and 6 ANDA filings which elevated the R&D cost. The pricing pressure in the US along with GST rollout in India made a dent in the revenues.
Lower revenues accompanied with higher R&D and employee cost has affected the margins adversely.
MARKET DATA KEY FINANCIALS
Shares outs (Mn) 189 INR Mn FY15 FY16 FY17 FY18E FY19E
Revenues 20,561 31,660 31,346 32,491 34,262
EquityCap (INR Mn) 377
EBITDA 4,030 10,067 6,147 6,209 6,035
Mkt Cap (INR Mn) 105202 APAT 2,825 7,204 4,107 4,135 3,902
52 Wk H/L (INR) 709/492 AEPS 15.0 38.2 21.4 22.0 20.7
P/E (x) 44.2 17.4 25.7 25.1 26.5
Volume Avg (3m K) 78.2
EV/EBITDA(x) 31.5 12.5 17.3 16.2 17.1
Face Value (INR) 2 ROAE (%) 36.3 58.0 23.0 20.2 16.7
Source: Company, KRChoksey Research
Bloomberg Code ALPM IN
Steep decline in domestic business
SHARE PRICE PERFORMANCE Alembic pharma reported a steep decline in its domestic business with sales at INR
2,360 Mn which was down by 17.5 % Q-o-Q and 21.1 % Y-o-Y. GST implementation has
130 led to destocking and supply side disruptions along with decrease in inventory days.
The inventory days has been reduced from 45 days to 15 days leading to dip in the
115 domestic sales. However, the lost sales of Q1FY18 will be recovered in the next coming
quarters. The company has guided that the inventory level will be back in traction but
100 at a slow pace.
International business increased marginally:
85 The international business has witnessed marginal growth with sales at INR 2,820 Mn
Nov-16
Jan-17
Mar-17
May-17
Jul-16
Sep-16
Jul-17
in Q1FY18 with a degrowth of 8.7% Y-o-Y and growth of 3.3 % Q-o-Q. The company plans
to strengthen its US portfolio by making more ANDA filings with a foray into oral
solids and injectables into oncology, ophthalmic solutions and dermatology. The
Sensex Alembic Pharma company has launched 5 new products in US market during the quarter and it expects
to launch 10 products in FY18.Going, ahead we expect slow momentum in drug
MARKET INFO launches in the US business.
Elevated R&D and employee cost has impacted the margins: The R&D expense has
SENSEX 32029 increased from INR 820 Mn in Q1FY17 to INR 940 Mn in Q1 FY18, an increase of 12.7%.
NIFTY 9915 The R&D as percent to sales has increased from 11% in Q1FY17 to 14% in Q1FY18. The
employee cost has increased from INR 1,341 Mn in Q1FY17 to INR 1,585 Mn in Q1FY18 an
increase of 15% O-o-Q and 18.2% Y-o-Y. The company has made new additions of
employees for one its new facility.
SHARE HOLDING PATTERN (%)
Particulars Jun 17 Mar 17 Dec 16
Promoters
FIIs
72.68
10.76
72.68
10.61
72.68
10.68 4.5% 15
DIIs 3.24 3.13 2.95
Others 13.33 13.59 13.69 Revenue CAGR between FY 17 Para IV filings
Total 100 100 100
and FY 19E
ANALYST KRChoksey Research 91-22-6696 5555 / 91-22-6691 9569

Vaibhav Chowdhry, Vaibhav.chowdhry@krchoksey.com, 91-22-6696 571 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
Alembic Pharma Ltd.

Valuations & Views: We believe Alembic Pharmas growth will be sluggish in the year due to lack of meaningful launches,
consolidation of channels, price erosion in major drugs and growing competition in the US for oral solids such as aripiprazole,
amlodipine ,valsartan etc. Export contributes nearly 60% to the total sales of Alembic. So, slowdown in exports will hamper the
margins. In Q1FY18, the domestic business has witnessed a steep decline due to GST destocking and supply side disruption.
However, we believe that the loss of revenues will be recovered over the coming quarters. We expect domestic business to
deliver growth of 13% in FY18. Going ahead, we believe that the topline will deliver a Y-o-Y growth of 3.7% in FY18 and 5.5% in FY19
with sales at INR 32,491 Mn in FY18 and INR 34,559 Mn in FY19 and EBITDA at INR 6,209 Mn in FY18 and INR 6,035 Mn in FY19.
At CMP of INR 541, the stock is trading at 25.7x FY17 EPS of INR 21.4, 25.1x FY18E EPS of INR 22.0 and 26.5x FY19E EPS of INR 20.7
We recommend HOLD rating on the stock and value the stock at 28x FY19E EPS of INR 20.7 with a target price of INR 580
indicating 7% upside from CMP.
Dent in revenues has pressurize the margins

10000 50.0
9000
8000 40.0
7000
6000 30.0
5000
4000 20.0
3000
2000 10.0
1000
0 0.0
Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1 2018
Revenue EBITDA Adj PAT EBITDA margin (%) PAT margin(%)

8000 US witnessed decline in revenues.. 100%
6000 50%
INR Mn
4000 0%
2000 -50%
0 -100%
International revenues YoY (%)
along with the domestic revenues.

4000 40%
3000 25%
INR Mn
2000 10%
1000 -5%
0 -20%
INR Mn YoY (%)

Alembic Pharma Ltd.

Q1FY18 Result Snapshot
Exhibit 1 Consolidated Result Update (INR Mn)
INR Mn Q1FY18 Q4FY17 Q1FY17 QoQ (%) YoY (%)

Net Sales 6,482 7,414 7,368 -12.6 -12.0
Other operating income 0 0 0 0.0 0.0
Total Income 6,482 7,414 7,368 -12.6 -12.0
Expenditure 5,468 6,068 5,798 -9.9 -5.7
Materials Consumed 1,820 2,005 1,937 -9.2 -6.0
% of sales 28 27 26
Employee Cost 1,585 1,379 1,341 15.0 18.2
% of sales 24 19 18
Other Exp 2,062 2,684 2,521 -23.2 -18.2
% of sales 32 36 34
EBITDA 1,014 1,346 1,570 -24.6 -35.4
EBITDA margin (%) 15.6% 18.2% 21.3%
Depreciation 218 218 194 0.0 12.7
EBIT 796 1,128 1,376 -29.4 -42.1
Other Income 2 9 6 -80.9 -71.7
Interest expenses 9 18 13 -50.8 -30.5
PBT 789 1,118 1,369 -29.5 -42.4
Tax 155 165 333 -6.1 -53.5
Effective tax rate (%) 20 15 24
PAT 634 953 1,036 -33.5 -38.8
Minority Interest -33 12 2
Reported PAT 667 941 1,035 -29.2 -35.5
Net Margin (%) 10.3% 12.7% 14.0%
EPS 3.5 3.7 5.4 -5.5 -34.6
Key Con-call Highlights:

Management expects that in FY19, there will be higher number of filings which will boost the topline and improve profitability.
The company will have R&D spend of 14% to sales in order to grow and fund its DMF and ANDA filings. The company made CAPEX
of around INR 230 crores in Q1FY8 out of which INR 62 crores were spent on Aleor JV.
The company has launched of 5 drugs in Q1 FY18 and plans to launch other 5 in the coming quarters.
The management believes that the lost domestic sales in the current quarter will be recovered over the next quarters. There will
be slow refill of inventory levels in next two months but the prescriptions are expected to meet the original level. The company
believes that the loss of domestic revenues will be recovered over the coming quarters.
The company has increased its sales force for its new facility which is expected to commence from H1FY18 and it is expected that
there will be an increase in employees in future too. The current field force of the company is 5000+ .
As the tax rate has been increased to 9% to 12% due to GST, the increase in tax will have burden on the margins. However, there
are some products of the company for which price hike has been approved by authorities in India.
The company has 45 pending ANDA filings out of which 15 are Para IV and first to file which creates a good opportunity for the
company to capitalize higher revenues.

Alembic Pharma Ltd.

Exhibit 2: Income Statement
INR Mn FY14 FY15 FY16 FY17 FY18E FY19E
Revenues 18,632 20,561 31,660 31,346 32,491 34,262
Op. Expenses 15,055 16,532 21,593 25,199 26,281 28,226
EBITDA 3,577 4,030 10,067 6,147 6,209 6,035
Other Income 32 23 73 25 31 39
Depreciation 405 444 722 830 828 963
EBIT 3,204 3,609 9,418 5,342 5,412 5,111
Interest 98 18 54 51 33 35
CSR expense 0 0 0 0 0 0
PBT 3,106 3,591 9,363 5,291 5,379 5,077
Tax 751 763 2,161 1,222 1,243 1,173
PAT 2,355 2,827 7,202 4,069 4,137 3,904
Minority 0 2 -2 -37 2 2
Sh. of Associates 0 0 0 0 0 0
Adj Pat 2,355 2,825 7,204 4,107 4,135 3,902
Exhibit 3 : Balance Sheet

Equity Share Capital 377 377 377 377 377 377
Reserves & Surplus 6,379 8,469 15,597 18,634 21,683 24,281
Total Shareholders Fund 6,756 8,846 15,974 19,011 22,060 24,658
Non- current liabilties 1,261 974 840 1,067 1,079 1,090
Long term Borrowings 840 438 0 0 0 0
Deferred tax liabilities 227 314 427 369 369 369
Other LT liabilties & prov 194 222 413 698 709 721
Current Liabilities 4,162 6,591 7,471 6,789 7,853 8,641
Short-term borrowings 254 2,197 1,137 1,053 1,100 1,150
Trade payables 2,884 3,109 5,657 5,232 6,120 6,805
Other cur liabilities & Prov 1,023 1,285 678 503 632 686
Total Liabilities 12,178 16,412 24,285 26,867 30,991 34,390
Assets
Non- current Assets 4,626 7,504 9,173 13,656 18,534 20,583
Fixed assets 4,176 5,947 8,006 11,957 16,822 18,859
Goodwill 0 353 534 497 497 497
Non-current investments 0 0 0 0 0 0
Long-term loans & adv 416 1,182 300 697 704 711
Other non-current assets 34 23 333 505 510 515
Current assets 7,552 8,907 15,112 13,211 12,458 13,807
Current investments 0 0 0 0 0 0
Trade receivables 2,734 3,612 3,504 3,375 3,734 4,031
Inventories 3,108 3,828 5,698 6,328 6,521 7,438
Cash & bank balances 240 268 4,508 1,596 386 216
Short-term loans & adv 1,471 1,200 1,402 1,912 1,817 2,121
Other current assets 0 0 0 0 0 0
Total Assets 12,178 16,412 24,285 26,867 30,991 34,390

Alembic Pharma Ltd.

Exhibit 4 FY17: Cash flow statement
PBT 3,106 3,591 9,363 5,291 5,379 5,077
Depreciation 405 444 722 830 828 963
Interest Exp 104 38 54 51 33 35
Others 189 -36 -79 -140 -1,565 4
CF before W.cap 3,804 4,037 10,061 6,032 4,675 6,078
Inc/dec in W.cap -715 -1,625 1,389 -1,965 -562 -778
Op CF after W.cap 3,088 2,412 11,450 4,066 4,113 5,300
Less Taxes 688 694 1,970 1,180 1,243 1,173
Net CF From Operations 2,400 1,718 9,480 2,887 2,870 4,127
Inc/(dec) in F.A + CWIP 1 1 24 -4,510 -3,000 -3,000
(Pur)/sale of Investments -820 -2,578 -3,092 36 -5 -5
others 8 21 0 12 0 0
CF from Invst Activities -811 -2,556 -3,068 -4,462 -3,005 -3,005
Loan Raised/(repaid) -965 1,522 -1,456 -388 14 16
Others 0 0 71 -48 0 0
Dividend -546 -655 -787 -901 -1,089 -1,307
CF from Fin Activities -1,511 867 -2,172 -1,337 -1,075 -1,291
Net inc /(dec) in cash 79 29 4,240 -2,912 -1,210 -169
Op. bal of cash 161 240 268 4,508 1,596 386
Cl. balance of cash 240 268 4,508 1,596 386 216
Exhibit 5 FY17: Ratio Analysis

EPS 12.5 15.0 38.2 21.4 22.0 20.7
CEPS 14.6 17.4 42.0 25.8 26.3 25.8
BVPS 35.8 46.9 84.7 100.9 117.0 130.8
DPS 3.6 4.2 -4.2 -4.8 -5.8 -6.9
Payout (%) 28.9 28.1 -11.0 -22.5 -26.3 -33.5
Valuation (x)
P/E 53.2 44.2 17.4 25.3 24.6 26.1
P/BV 18.5 14.1 7.8 5.4 4.6 4.1
EV/EBITDA 35.9 31.5 12.5 17.0 15.9 16.8
Dividend Yield (%) 0.5 0.6 -0.6 -0.9 -1.1 0.0
Return ratio (%)
EBIDTA Margin 19.2 19.6 31.8 19.6 19.1 17.6
PAT Margin 12.6 13.8 22.7 13.0 12.7 11.4
ROAE 40.0 36.3 58.0 23.0 20.2 16.7
ROACE 41.4 35.6 62.8 27.3 23.9 20.0
Leverage Ratios (x)
Long Term D/E 0.1 0.0 0.0 0.0 0.0 0.0
Net Debt/Equity 0.1 0.3 -0.2 0.0 0.0 0.0
Debt/EBITDA 0.3 0.7 0.1 0.2 0.2 0.2
Interest Coverage 32.3 201.4 172.1 103.9 163.1 147.0
Current ratio 1.9 2.0 2.4 2.3 1.8 1.8
Growth Ratios (%)
Income growth 22.6 10.4 54.0 -1.0 3.7 5.5
EBITDA growth 42.0 12.7 149.8 -38.9 1.0 -2.8
PAT growth 42.5 20.1 154.7 -43.5 1.7 -5.6
Turnover Ratios
F.A Turnover x 2.8 2.5 2.8 2.0 1.8 1.6
Inventory Days 56.6 61.6 54.9 70.0 72.2 74.4
Debtors Days 49.6 56.3 41.0 40.0 39.9 41.4
Payable days 64.1 66.2 74.1 78.9 78.8 83.6

Alembic Pharma Ltd.

Alembic Pharma Ltd. Rating Legend
Date CMP (INR) TP (INR) Recommendation Our Rating Upside
21-Jul-17 540 580 HOLD
Buy More than 15%
27-Jan-17 578 667 ACCUMULATE
26-Oct-16 674 690 HOLD Accumulate 5% - 15%
01-Aug-16 627 640 HOLD Hold 0 5%
28-Apr-16 619 623 HOLD
22-Jan-16 626 761 BUY Reduce -5% 0
28-Oct-15 664 756 ACCUMULATE Sell Less than -5%
28-Sep-15
ANALYST CERTIFICATION: 676 700 HOLD
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Alembic Pharma Ltd.

RESULT UPDATE 21st July,

Alembic Pharma Ltd. Weak start for the year

MARKET DATA KEY FINANCIALS

SHARE HOLDING PATTERN (%)

Particulars Jun 17 Mar 17 Dec 16

ANALYST KRChoksey Research 91-22-6696 5555 / 91-22-6691 9569