4QFY2016 Result Update | Pharmaceutical

May 9, 2016

Alembic Pharma

NEUTRAL

CMP

`600

Performance Highlights

Target Price

Y/E March (` cr)

4QFY2016 3QFY2016

% chg (qoq) 4QFY2015

% chg (yoy)

Investment Period

Net Sales

626

921

(32.1)

502

24.7

Other Income

3.4

21.3

Stock Info

Operating Profit

142

384

(62.9)

46.7

Sector

Pharmaceutical

Interest

25.0

Market Cap (` cr)

11,301

Net Profit

269

(66.2)

29.6

Net Debt (` cr)

814

Source: Company, Angel Research

Beta

0.7

52 Week High / Low

792/452

Alembic Pharmaceuticals’ 4QFY2016 results have come in below our

Avg. Daily Volume

28,108

expectations, on the sales front. The company posted sales of `626cr (V/s `763cr

Face Value (`)

expected) for the quarter, registering a yoy growth of 24.7%. The growth in sales

BSE Sensex

25,102

was driven by international formulations (`190.2cr) which grew 20% yoy, while

Nifty

7,707

Indian formulations (`259.6cr) grew 12% yoy. On the operating front, the EBIDTA

Reuters Code

ALEM.BO

margin stood at 22.7% V/s 20.0% expected. The net profit at `91.2cr (V/s `93.4cr

Bloomberg Code

ALPM@IN

expected), grew 29.7% yoy. We maintain our Neutral rating on the stock.

Results below expectations: The company posted sales of `626cr (V/s `763cr

Shareholding Pattern (%)

expected), registering a yoy growth of 24.7%. The growth in sales was driven by

international formulations

(`190.2cr) which grew

20% yoy, while Indian

Promoters

74.1

formulations (`259.6cr) grew 12% yoy. The API business (`166.9cr) posted a 95%

MF / Banks / Indian Fls

3.0

yoy growth. On the operating front, the EBIDTA margin stood at 22.8% V/s 20.0%

FII / NRIs / OCBs

11.1

expected. The gross margin expanded to 80.2% V/s 65.3% in the corresponding

Indian Public / Others

11.8

period of last year; however the expansion in the OPM was relatively lower as

R&D expenditure during the quarter stood at 17.8% of sales V/s 6.1% of sales in

Abs. (%)

3m 1yr

3yr

4QFY2015. The company posted a net profit of `91.2cr (V/s `93.4cr expected),

Sensex

3.1

(8.7)

28.2

up 29.7% yoy.

Alembic Pharma

(5.3)

27.2

391.4

Outlook and valuation: Over FY2016-18E, we expect the company to post a

CAGR of 13.9% in sales, while profitability will be under pressure on back of

higher R&D spend, which is likely to reach 13-14% of sales in FY2017-FY2018E.

3-year price chart

We recommend a Neutral rating on the stock.

Key Financials (Consolidated)

Y/E March (` cr)

FY2015

FY2016

FY2017E

FY2018E

Net Sales

2,053

3,145

3,483

4,083

% chg

10.2

53.2

10.8

17.2

Net Profit

283

720

352

447

% chg

20.0

154.1

(51.1)

27.0

EPS (`)

15.0

38.2

18.7

23.7

EBITDA Margin (%)

19.5

31.9

16.2

17.4

Source: Company, Angel Research

P/E (x)

39.9

15.7

32.2

25.3

RoE (%)

36.3

57.9

20.1

21.3

RoCE (%)

30.2

51.0

22.0

23.5

P/BV (x)

12.8

7.1

6.0

4.9

Sarabjit Kour Nangra

EV/Sales (x)

5.6

3.5

3.2

2.7

+91- 22- 36357600 - 6806

EV/EBITDA (x)

28.5

10.9

19.6

15.3

[email protected]

Source: Company, Angel Research; Note: CMP as of May 4, 2016

Please refer to important disclosures at the end of this report

Alembic Pharma | 4QFY2016 Result Update

Exhibit 1: 4QFY2016 performance (Consolidated)

Y/E March (` cr)

4QFY2016

3QFY2016

% chg (qoq) 4QFY2015

% chg (yoy) FY2016 FY2015

% chg (yoy)

Net sales

626

921

(32.1)

502

24.7

3,145

2,053

53.2

Other income

3.4

21.3

51.7

Total income

629

925

505

24.6

3,154

2,059

Gross profit

502

715

(29.8)

328

52.9

2376

1338

77.6

Gross margin

80.2

77.6

65.3

75.5

65.2

Operating profit

142

384

(62.9)

46.7

1002

400

150.6

Operating margin (%)

22.7

41.7

19.3

31.9

19.5

Interest

25.0

84.0

Depreciation

12.7

121.8

64.1

PBT

120

365

(67.0)

35.1

936

359

160.6

Provision for taxation

(69.9)

47.9

216

184.2

PAT before Extra-ordinary item

269

(66.2)

29.6

720

283

154.3

Extra-Ordinary Expenses

PAT after Extra-ord. item & MI

269

(66.2)

29.6

720

283

154.3

EPS (`)

4.8

14.3

3.7

38.2

15.0

Source: Company, Angel Research

Exhibit 2: 4QFY2016 - Actual vs Angel estimates

(` cr)

Actual

Estimates

Variation (%)

Net Sales

626

763

(18.0)

Other Income

4.0

Operating Profit

142

145

(1.9)

Interest

0.0

Tax

(0.0)

Net Profit

(2.4)

Source: Company, Angel Research

Sales below expectation: Alembic Pharma’s 4QFY2016 results are below

expectation on the sales front. The company posted sales of `626cr (V/s `763cr

expected), up 24.7% yoy.

The growth in sales was driven by the international formulations business

(`190.2cr) which posted a yoy growth of

20%, while Indian formulations

(`259.6cr) posted a 12% yoy growth. The growth in the Indian formulations

segment was driven by the specialty segment which grew by 13% yoy, while the

acute segment grew by 7% yoy during the period. During FY2016, the specialty

segment had a 60% share in domestic formulations while the rest was accounted

by the acute segment (40%). The API business (`166.9cr) posted a growth of 95%

yoy. The Indian generic segment on the other hand posted a dip of 46% yoy.

Till date, the company has filed 76 products (2 in 4QFY2016), received 47

approvals (2 in 4QFY2016) and launched 29 products in the market. The

remaining 27 ANDA filings are primarily para IVs and attractive opportunities for

the company. The company has also launched 11 products through its own front

end in the US.

May 9, 2016

Alembic Pharma | 4QFY2016 Result Update

Exhibit 3: Sales trend

1,080

1,008

921

880

680

626

582

502

480

280

4QFY2015

1QFY2016

2QFY2016

3QFY2016

4QFY2016

Source: Company, Angel Research

OPM higher than expectation: On the operating front, the EBIDTA margin stood at

22.7% V/s 20.0% expected. The gross margin expanded to 80.2% V/s 65.3% in

the corresponding period of last year; however the expansion in the OPM was

relatively lower as R&D expenditure during the quarter stood at 17.8% of sales V/s

6.1% of sales in 4QFY2015. For FY2016, R&D expenditure was 9.7% of sales. The

gross margins expanded on back of favorable product mix and booking of

disproportionate profit share from Abilify sales.

Exhibit 4: OPM Trend (%)

45.0

41.7

40.0

37.2

35.0

30.0

25.0

22.7

19.3

20.0

17.4

15.0

4QFY2015

1QFY2016

2QFY2016

3QFY2016

4QFY2016

Source: Company, Angel Research

Net profit below expectation: The company posted a net profit of `91.2cr (V/s

`93.4cr expected), ie a yoy growth of 29.7%.

May 9, 2016

Alembic Pharma | 4QFY2016 Result Update

Exhibit 5: Net profit trend

350

269

289

300

269

250

200

150

100

4QFY2015

1QFY2016

2QFY2016

3QFY2016

4QFY2016

Source: Company, Angel Research

Concall highlights

 The company has guided for `450cr spend for FY2017. Till now the company

was focusing upon oral solids filings in the US. However, going forward it

would be focusing upon niche filings in the area of oncology orals &

injectables and derma products (through JV with Orbicular).

 The company has given `400cr of capex guidance for FY2017.



483 observations at Panelav facility although non-serious in nature; no data

integrity issue found.

Investment arguments

Focus on chronic segment to drive domestic formulation growth: Alembic Pharma

has been restructuring its business portfolio, which would aid in improving its

growth and operating performance. The company’s domestic formulation business

contributed 44% to its total sales in FY2016. The company has a strong field force

of ~3,600 medical representatives. Going forward, the company expects its

domestic formulation business to at least grow in line with the industry growth rate,

before it sees an improvement in the share of the high growth chronic segment.

For FY2016-18E, we expect the domestic formulation business to grow at a CAGR

of 15.0%.

Exports- US the key growth driver: On the exports front, the formulation business

contributed by 30% to the total turnover, with majority of the contribution coming

from Europe and the US. In the US, the company has filed for ~76 ANDAs till date

and received 47 approvals. The company, going forward, expects to keep its

momentum high in terms of number of filings, by filing around 10-12 ANDAs per

annum. For FY2016-18E, we expect exports to register a CAGR of 13.6%, mainly

on back of base effect impact of FY2016 (sales grew by 46%, due to launch of

Abilify).

Outlook and valuation: Over FY2016-18E, we expect the company to post a

CAGR of 13.9% in sales, while profitability will be under pressure on back of

May 9, 2016

Alembic Pharma | 4QFY2016 Result Update

higher R&D spend, which is likely to reach 13-14% of sales in FY2017-FY2018E.

We recommend a Neutral rating on the stock.

Exhibit 6: Key assumptions

FY2017E

FY2018E

Domestic formulation sales growth (%)

16.0

14.0

Exports sales growth (%)

8.0

20.0

R&D as % of sales

14.0

13.0

Operating margins (%)

16.2

17.4

Capex (` cr)

400

200

Net Debt/Equity (x)

(0.1)

(0.2)

Source: Company, Angel Research

Exhibit 7: Recommendation summary

Reco.

CMP Tgt Price Upside

FY2017E

FY15-17E

FY2017E

(`)

(%) PE (x) EV/Sales (x) EV/EBITDA (x)

CAGR in EPS (%) RoCE (%) RoE (%)

Alembic Pharma

Neutral

600

25.3

2.7

15.3

11.4

23.5

21.3

Aurobindo Pharma Accumulate

812

856

5.4

19.0

3.0

13.2

15.6

23.5

30.2

Cadila Healthcare

Accumulate

322

352

9.2

18.3

3.6

16.5

24.6

25.2

29.0

Cipla

Accumulate

533

605

13.4

19.4

3.2

16.1

18.3

16.7

16.1

Dr Reddy's

Buy

2,933

3,933

34.1

16.4

2.4

10.6

17.2

19.1

20.4

Dishman Pharma

Neutral

165

16.5

1.8

8.2

15.9

9.4

11.0

GSK Pharma

Neutral

3,623

53.0

9.3

42.1

6.6

33.7

34.3

Indoco Remedies

Neutral

271

19.9

2.2

11.9

23.0

19.7

Ipca labs

Buy

487

750

54.2

17.4

1.8

9.7

17.9

11.8

14.9

Lupin

Neutral

1,578

23.1

3.9

14.6

13.1

29.6

24.7

Sanofi India*

Accumulate

4,410

4,738

7.4

28.7

4.7

22.9

34.2

21.0

25.6

Sun Pharma

Neutral

803

950

18.3

29.8

5.2

17.1

8.4

15.8

16.6

Source: Company, Angel Research; Note: *December year end

Company Background

Alembic Pharmaceuticals is a leading pharmaceutical company in India. The

company is vertically integrated to develop pharmaceutical substances and

intermediates. The company is a market leader in the Macrolides segment of

anti-infective drugs in India. Its manufacturing facilities are located in Vadodara

and in Baddi (Himachal Pradesh; for the domestic and non-regulated export

market). The Panelav facility houses the API and formulation manufacturing (both

USFDA approved) plants.

May 9, 2016

Alembic Pharma | 4QFY2016 Result Update

Profit & Loss Statement (Consolidated)

Y/E March (` cr)

FY2014

FY2015

FY2016

FY2017E

FY2018E

Gross sales

1,871

2,064

3,181

3,522

4,128

Less: Excise duty

Net sales

1,863

2,053

3,145

3,483

4,083

Other operating income

3.2

5.7

3.6

Total operating income

1,866

2,058

3,149

3,487

4,087

% chg

22.8

10.3

53.0

10.7

17.2

Total expenditure

1,506

1,653

2,143

2,918

3,373

Net raw materials

713

715

769

1,184

1,388

Other mfg costs

138

153

180

Personnel

247

307

421

506

607

Other

463

542

814

1,075

1,198

EBITDA

358

400

1,002

565

710

% chg

43.7

11.7

150.9

(43.6)

25.6

(% of Net Sales)

19.2

19.5

31.9

16.2

17.4

Depreciation& amortisation

120

Interest & other charges

Other income

(% of PBT)

Share in profit of Associates

Recurring PBT

308

360

936

457

580

% chg

49.4

16.8

160.2

(51.2)

27.0

Extraordinary expense/(Inc.)

PBT (reported)

308

360

936

457

580

Tax

216

105

133

(% of PBT)

24.4

21.2

23.1

23.0

PAT (reported)

236

283

720

352

447

Add: Share of earnings of asso.

(0)

Less: Minority interest (MI)

Prior period items

PAT after MI (reported)

236

283

720

352

447

ADJ. PAT

236

283

720

352

447

% chg

43.0

20.0

154.1

(51.1)

27.0

(% of Net Sales)

12.7

13.8

22.9

10.1

10.9

Basic EPS (`)

12.5

15.0

38.2

18.7

23.7

Fully Diluted EPS (`)

12.5

15.0

38.2

18.7

23.7

% chg

43.0

20.0

154.1

(51.1)

27.0

May 9, 2016

Alembic Pharma | 4QFY2016 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr)

FY2014

FY2015

FY2016

FY2017E

FY2018E

SOURCES OF FUNDS

Equity share capital

37.7

Preference Capital

Reserves & surplus

638

847

1,563

1,860

2,252

Shareholders funds

676

885

1,601

1,898

2,290

Minority Interest

Other Long Term Liabilities

12.7

15.8

33.9

14.3

Long Term Provisions

6.7

6.4

7.4

Total loans

239

133

150

Deferred tax liability

Total liabilities

795

1,177

1,824

2,119

2,511

APPLICATION OF FUNDS

Gross block

665

907

1,208

1,608

1,808

Less: acc. depreciation

268

313

385

483

603

Net block

397

595

824

1,125

1,206

Capital work-in-progress

Goodwill

Long Term Loans and Adv.

118

Investments

3.4

2.3

2.1

3.3

Current assets

755

891

1,507

1,848

2,321

Cash

451

291

496

Loans & advances

147

120

409

453

531

Other

584

716

647

1,104

1,294

Current liabilities

422

464

635

940

1,102

Net current assets

333

426

872

908

1,219

Mis. Exp. not written off

Total assets

795

1,177

1,824

2,119

2,511

May 9, 2016

Alembic Pharma | 4QFY2016 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr)

FY2014 FY2015 FY2016 FY2017E FY2018E

Profit before tax

308

360

936

457

580

Depreciation

120

(Inc)/Dec in Working Capital

(84)

191

(465)

Less: Other income

Direct taxes paid

216

105

133

Cash Flow from Operations

190

393

982

(15)

609

(Inc.)/Dec.in Fixed Assets

(81)

(222)

(301)

(400)

(200)

(Inc.)/Dec. in Investments

Other income

Cash Flow from Investing

(81)

(222)

(301)

(400)

(200)

Issue of Equity

Inc./(Dec.) in loans

(109)

164

(87)

(2)

Dividend Paid (Incl. Tax)

(55)

Others

(34)

184

160

Cash Flow from Financing

(197)

293

(6)

(4)

Inc./(Dec.) in Cash

396

(160)

205

Opening Cash balances

451

291

Closing Cash balances

451

291

496

May 9, 2016

Alembic Pharma | 4QFY2016 Result Update

Key Ratios

Y/E March

FY2014

FY2015

FY2016

FY2017E

FY2018E

Valuation Ratio (x)

P/E (on FDEPS)

47.9

39.9

15.7

32.2

25.3

P/CEPS

40.9

34.5

14.3

25.1

20.0

P/BV

16.7

12.8

7.1

6.0

4.9

Dividend yield (%)

0.4

EV/Sales

6.1

5.6

3.5

3.2

2.7

EV/EBITDA

31.7

28.5

10.9

19.7

15.4

EV / Total Assets

14.3

9.7

6.0

5.2

4.3

Per Share Data (`)

EPS (Basic)

12.5

15.0

38.2

18.7

23.7

EPS (fully diluted)

12.5

15.0

38.2

18.7

23.7

Cash EPS

14.7

17.4

42.0

23.9

30.0

DPS

2.5

Book Value

35.8

46.9

84.9

100.7

121.5

Dupont Analysis

EBIT margin

17.0

17.3

29.6

13.4

14.5

Tax retention ratio

75.6

78.8

76.9

77.0

Asset turnover (x)

2.5

2.2

2.5

2.2

2.1

ROIC (Post-tax)

32.5

29.6

57.4

22.5

23.7

Cost of Debt (Post Tax)

5.6

0.9

1.5

5.4

Leverage (x)

0.2

0.1

0.0

Operating ROE

38.2

33.8

57.6

22.5

23.7

Returns (%)

ROCE (Pre-tax)

39.9

30.2

51.0

22.0

23.5

Angel ROIC (Pre-tax)

44.5

38.7

77.0

29.5

30.7

ROE

40.0

36.3

57.9

20.1

21.3

Turnover ratios (x)

Asset Turnover (Gross Block)

3.0

2.6

3.0

2.5

2.4

Inventory / Sales (days)

56.5

61.5

54.1

68.4

72.5

Receivables (days)

49.5

56.3

43.5

56.3

62.3

Payables (days)

79.8

79.3

37.8

39.7

44.6

WC cycle (ex-cash) (days)

58.6

60.3

45.9

54.3

59.8

Solvency ratios (x)

Net debt to equity

0.1

0.2

(0.2)

(0.1)

(0.2)

Net debt to EBITDA

0.2

0.5

(0.3)

(0.2)

(0.5)

Interest Coverage (EBIT / Int.)

32.3

199.5

252.8

47.2

56.2

May 9, 2016

Alembic Pharma | 4QFY2016 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER

Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,

Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with

CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is

a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number

INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing

/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial

ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /

managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst

has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity

of the company covered by Analyst.

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should

make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the

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the merits and risks of such an investment.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

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latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may

have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement

Alembic Pharma

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15)

May 9, 2016