ALEMBIC PHARMACEUTICALS LTD.(APL) Date : 13 th September, 212 Stock Performance Details Current Price : Rs. 73.35** Face Value : Rs. 2 per share 52 wk High / Low : Rs. 78.95 / Rs.34. Total Traded Volumes : 1,36,3 shares** Market Cap : Rs. 1,382.6 crore** Sector : Pharmaceuticals EPS (FY12) : Rs. 6.68 per share P/E (TTM) : 7.86 (x)^ P/BV (TTM : 2.65 (x)^ Financial Year End : 1 st April 31 st March BSE Scrip Name : ALEMBICPHARM BSE Scrip Code : 533573 ** as on 13 th September, 212; ^ as on June 212 Shareholding Details June 212 Particulars Shareholding Nos. (%) Promoter & Promoter Group Holding 13,97,38,62 74.13 Total Institutional Holdings (FIIs & DIIs) 1,43,72,932 7.62 Public Holdings 3,44,4,362 18.25 Total 18,85,15,914 1. Strategy Focus Background Alembic Pharmaceuticals Limited (APL) was incorporated as a wholly-owned subsidiary of Alembic Ltd. in June 21. The parent company Alembic Ltd, demerged the entire company into two verticals. The core Pharma business was retained under Alembic Pharmaceuticals Ltd with effect from April 1, 21 (listed on BSE in Sept 211) and Alembic Ltd - Penicillin (Pen-G) manufacturing operations, power generation and real estate business. APL has presence in Branded Formulations, Active Pharmaceutical Ingredients (API) and International Generics Segment. It has presence across therapeutic segments with Anti-Infective, Gastrology and Cough & Cold segment as core areas based on sales. The company has USFDA, MCC, MHRA, ANVISA, TPD approved formulations facility at Panelav with current annual production capacity of 2.6 billion tablets/capsules. The Branded formulations are manufactured at Baddi, Himachal Pradesh. For APIs it has USFDA, EDQM, TGA, WHO approved facility at Panelav (2 units) and at Karkhadi (1 unit). The company intends to reduce its dependence on Anti-Infectives by investing in newer specialty segments such as Gastroenterology, Cardiology, Gynaecology, Opthalmics, Anti- Diabetic, Nephrology etc, APL launched a dermatology division during the quarter with a field force of 1 people which will strengthen its portfolio of speciality products and it is eyeing the respiratory market. Further, the company plans to retain and consolidate its strong presence in acute therapies in the domestic markets while growing chronic therapies through multiple marketing divisions. The company has filed a total of 49 ANDA with 2 approvals by June 212. The Company is also increasing its focus on Europe and emerging markets. It filed its first Brazilian Dossier with the ANVISA and filed 1 dossier each in Europe and Australia. The total of USDMF filings stands at 63 USDMF at the end of the same period. APL undertakes therapy focused marketing through 12 marketing arms on PAN India basis supported by over 3,6 field force covering over one lakh doctors which indicates its thrust on sales. The Company is undertaking capacity expansion of its formulation facility and is expected to be completed by Q4 FY13. The capacity will increase from 2.6 billion tablets/capsules to 5 billion in the first phase which is expected to augment its International generics business. In line with its focus on Research and Development, the Company has entered into a development and license agreement with Accu-Break Pharmaceuticals Inc (ABP), to develop new brand products that will use ABP s innovative Accu-Break tablet technologies. ABP s patented Accu-Break tablets can be split easily by hand into exact smaller doses to provide maximum flexibility, and to make it easier and safer for patients and caregivers to adjust their dosage. The first product that ABP will seek Food and Drug Administration marketing approval for is an Accu-Breakformatted version of the popular anticoagulant medication Warfarin. An Initiative of the BSE Investors Protection Fund 1
Financial Snapshot Particulars Consolidated Financials (Rs. In Million) Income Statement FY12 FY11 Net Sales / Income from Operations 14,663.9 12,2.5 Expenses Cost of material consumed 7,723.6 5,951.3 Change in Inventories -644.4-47.2 Employee Benefit Expenses 1,684.6 1,492.1 Administrative & Other Expenses 3,696.1 3,21.9 EBIDTA 2,24. 1,62.4 Depreciation & Amortization 336.5 295.9 Finance Costs / Interest Expense 375.5 275.9 Other Income 117.8 37.8 Profit After Tax (PAT) 1,31.3 853.9 Key Ratios Income Statement EBIDTA Margin (%) 15. 13.3 PAT Margins (%) 8.9 7.1 Balance Sheet Networth 3,949.9 2,967.3 Non Current Liabilities / Loan Funds 948.6 1,284.8 Non Current Assets / Fixed Assets 2,678.2 2,719.9 Inventories 2,587.4 2,192.3 Debtors 1,993.3 2,19.7 Key Ratios Balance Sheet Debt : Equity (x).32.43 Book Value (BV) (in Rs.) 2.95 49.1 Return on Capital Employed (ROCE) (%) 41.81 36.48 Return on Equity (ROE) (%) 39.14 37.95 Debtors Turnover Ratio (x) 7.34 7.19 Inventory Turnover Ratio (x) 6.16 6.62 Valuation Ratios P/E (x) 7.25 NA P/BV (x) 2.31 NA EV / EBDITA 4.14 NA Source : Capitaline Database; as on March 212; NA Not Available From the Research Desk of LKW s Gurukshetra.com The company reported net income from operations of Rs. 14,663.9 million an increase of 22% y-o-y as per the consolidated financials for the fiscal year ended 31 st March, 212. The increase in sales is mainly driven by the growth in the formulations segment which accounts for nearly 74% of the total sales and stood at Rs. 1,811.1 million in FY 212. Further, in terms of contribution of exports to total sales, the same stood 6% in FY212 as compared to 66% in FY211 indicating a decline in export growth in percentage terms. However, in absolute terms, the exports have increased y-o-y by 43% at Rs. 5,777.2 million. Overall, exports have driven growth in FY12 as they increased by 43% y-o-y as against domestic growth of 11.3% y-o-y. Now, within the export segment too the API business has clocked a growth of 55% y-o-y at Rs. 2,792.2 million compared to Rs. 1,799 million in FY 211. An Initiative of the BSE Investors Protection Fund 2
On a consolidated basis, EBIDTA increased by 38% at Rs. 2,24 million while Profit After Tax stood at Rs. 133.1 million in FY212 registering a growth of 52% on a y-o-y basis. The bottomline growth has been on account of increase in Other Income by Rs. 8 million in addition to the overall topline growth. Further, post the acquisition of Dabur s Non-Oncology segment in 27 there seems to have been a shift from the acute to chronic ailments segments which would in turn have better margins. Currently, the acute portfolio constitutes of 62% of the total revenues while, the chronic portfolio forms the balance and it s expected to grow at 22% in the years to come. However, to ensure that the company is able to successfully enter into the niche and fast growing segments in the chronic ailments business would entail higher marketing and promotional expenses. Receivable days have declined in FY12 as the Debtors Turnover Ratio stood at 7.34 (x) in FY212 as compared to 7.16 (x) in FY211. This is indicative of the stringent measures adopted by the management across its channels to improve the working capital management cycle. The Debtors stood at Rs. 1993.3 million in FY212 compared to Rs. 2,19.7 million in FY211. Nevertheless, the inventory has increased from Rs. 47 million in FY211 to Rs. 644 million in FY212 and is also visible from the lower inventory turnover ratio for FY212. The operations at the company s API -1 Plant at Panelav in Vadodara which is the company solvent unit had remained shut on account of fire during the last week of August 212 at the plant. However, the operations now have been restored at the said plant. On a consolidated basis, the company posted a 12 % rise in net profit to Rs 38.3 million in Q1FY13, up from Rs. 275.6 million in the corresponding quarter in 211-12 fiscal. Net sales were up 7 per cent to Rs 3,68 million during the quarter under review against Rs. 345 crore in corresponding quarter last year. Domestic formulations sales were up 14% during the quarter at Rs. 1,97 million against Rs. 1,72 million in the same period a year before. The export sales from the Formulation business were up marginally at Rs. 139 million in Q1 FY13 from Rs 137 crore in Q1FY12. For the period under review, API exports stood at Rs. 834.8 million against Rs. 67.3 million in Q1 FY12. Performance on the Bourses Stock Performance as on 13th September, 212 % 18 16 14 12 1 8 6 4 2 Alembic Pharma BSE Small Cap An Initiative of the BSE Investors Protection Fund 3
Peer Comparison The following table gives a snapshot view of the company s performance vis-à-vis its peers for FY212 in a highly regulated Pharma Industry comprising exists many large and small domestic and foreign pharmaceutical companies. (Rs. In Million) Consolidated Financials Standalone Financials Particulars Alembic Unichem Indoco Pharmaceuticals Labs Remedies Net Sales 14,663.9 8,754.6 5687.7 EBIDTA 2,24. 1,183.5 845.8 PAT 1,31.3 712.6 463.4 EBIDTA Margins (%) 15.3 13.5 14.8 PAT Margins (%) 8.87 8.14 8.15 P/E (x) ^ 8.65 11.49 11.36 P/BV (x) ^ 2.9 1.57 1.33 Debt : Equity (x).32.7.14 EV / EBIDTA (x) ^ 5.43 7.21 6.2 Source : Capitaline Database; ^ TTM as on June 212 on a standalone basis; About the Industry The Indian domestic pharmaceutical market was estimated to be US$ 1.76 billion in 28 and the projected growth rate upto 21 was 9.9 per cent, before settling to a CAGR of 9.5 per cent till 215. Currently, the Indian pharmaceutical industry is one of the world's largest and most developed, ranking 4th in volume terms and 13th in value terms. India is one of the world's most lucrative healthcare markets, and is expanding rapidly. The overall Indian healthcare industry is projected to grow to Rs. 2,88, crores by 216-17 and is further expected to reach Rs. 4,81, crores by 219-2 registering a growth of 19%. Of this, the growth from the domestic market is likely to be in the range of 2 21% while, exports are likely to grow by 16 17% respectively. The Government has decided to increase health expenditure to 2.5 per cent of the gross domestic product (GDP) by the end of the Twelfth Five Year Plan, from the current 1.4 per cent. Over the next five years, products that currently generate more than USD 142 billion in sales are expected to go off-patent. Of this, Indian pharmaceutical companies expect about $96 billion worth drugs to go off patent in the US in 211-213 which opens up huge opportunities for the generic pharma companies in India. Further, many pharma MNC s are planning to set up their bases in India either through joint ventures of through capacity expansion given the labour advantage, lower R&D costs and a high-talent pool in India.. The growth is expected due to factors like new product launches, focus on improving effectiveness of field force additions and favourable pricing environment. Further, with increased penetration of better healthcare facilities in the rural areas is likely to drive growth further. However, given the highly regulated nature of the pharma industry, the implementation of the new drug pricing policy will impact the pricing ability of companies in the industry. Furthermore, increasing competition in the chronic ailment segment, aggressive approach such as authorized generics by innovators in the US and healthcare reforms in European markets are factors which merit attention. Outlook With fast changing life styles coupled with rising disposable incomes, the prospects of the pharmaceutical sector appear to be on an uptrend with increased thrust on healthcare by the Government. Further, companies have increased their focus on R&D which as a per cent of sales too has gone up and is falling in line with the international companies. However, the inherent growth in the pharma sector and expiry of patents in the global markets over the next five years is likely to boost the prospects of the company. With renewed thrust on marketing and capacity expansions underway for the company, Alembic is expected to benefit from the promising prospects of the sector. However, its ability to execute the plans set forth and focuses on R&D, product development and product filings with the USFDA will need to be monitored closely. An Initiative of the BSE Investors Protection Fund 4
Financial Graphs Net Income from Operations Rs. in Millions 18, 13,5 9, 4,5 12,21 14,664 FY 211 FY 212 EBITDA & EBITDA Margins Rs. in Millions 2,5 2, 1,5 1, 5 15. 13.3 2,24 1,62 FY 211 FY 212 16 15 13 12 1 % EBIDTA EBIDTA Margins PAT & PAT Margins 1,5 8.9 1 Rs. in Millions 1,2 9 6 3 7.1 853.9 1,31.3 8 6 4 2 % FY 211 FY 212 PAT PAT Margins Disclaimer All information contained in the document has been obtained by LKW s Gurukshetra.com from sources believed to be accurate and reliable. Although reasonable care `has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and LKW s Gurukshetra.com in particular makes no representation or warranty express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements of opinion, and LKW s Gurukshetra.com shall not be liable for any losses incurred by users from any use of this document or its contents in any manner. Opinions expressed in this document are not the opinions of our company and should not be construed as any indication of our recommendation to buy, sell or invest in the company under coverage. An Initiative of the BSE Investors Protection Fund 5
Disclosure Each member of the team involved in the preparation of this report, hereby affirms that there exists no conflict of interest. The report has been sponsored and published as part of Initiative of BSE s Investors Protection Fund About Us LOTUS KNOWLWEALTH (LKW), commenced business in 199 and is currently engaged in providing WEALTH ADVISORY, CORPORATE ADVISORY and ECONOMIC & FINANCIAL RESEARCH & CONTENT services. LKW s ECONOMIC & FINANCIAL RESEARCH & CONTENT division currently generates Reports on Economic & Industry Trends, Global & Indian Equity Markets, Fundamental Analysis of IPOs, Companies & Industries, Management Meeting Reports, Balance Sheet & Financial Analysis Reports and an Economic Political and Sentiment Barometer. LKW also conducts Capital Market related Training Programs and has cutting edge expertise in Mutual Fund Analysis and specializes in Grading of Mutual Fund Schemes and IPOs. GURUKSHETRA.com is an online initiative of LKW that focuses on Personal Finance while theipoguru.com is India s Premier Primary Market (IPO) Portal. Contact Us LOTUS KNOWLWEALTH Pvt. Ltd. Regd.Office : B Wing, 55-56, Fairlink Centre, Off Andheri Link Road, Andheri (W), Mumbai 4 53 Email : consulting@lotusknowlwealth.com Tel : 22-41 5482 41 5483 Website : www.lkwindia.com www.gurukshetra.com An Initiative of the BSE Investors Protection Fund 6