Alembic Pharma is up 50% since we recommended the stocks to our retail & institutional clients. And here is a thread on why we are still bullish on it with a Target Price of 2100.
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1/n
Alembic Pharma was only in OSD (Oral solid dosages) earlier & the company had strategically moved up the value chain towards Formulations. In the last 4 years the company has transformed from 2 formulations to 6 currently.
2/n
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The company is fast growing its presence in verticals like Injectables , Oncology, Dermatology, Ophthalmology. Highest R&D spend as % of sales (15%) when compared to the median of 8% across other pharma majors.
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Injectables: Alembic ventured into Injectables where the complexity is 10 times more than sterile drugs. Very few companies are capable of getting regulatory approvals, manufacturing & scale Injectables.
4/n
4/n
US focused strategy & 10 new launches in 2020-21. High growth visibility & Margin expansion in the next 2-3 years.
5/n
5/n
The company has 3 major revenue segments:
a) Generics (54% of revenue)
b) Branded Formulations (31% of revenue)
c) API (15% of revenue)
The company has 9 manufacturing facilities & 2 major business segments:
a) International Generics (IG)
b) Domestic branded
6/n
a) Generics (54% of revenue)
b) Branded Formulations (31% of revenue)
c) API (15% of revenue)
The company has 9 manufacturing facilities & 2 major business segments:
a) International Generics (IG)
b) Domestic branded
6/n
International Generics (IG):
US contributes 43% of Total sales & 80% of International generics. Rest of the World (Non US) contributes 11% of Total sales & 20% of International generics.
7/n
US contributes 43% of Total sales & 80% of International generics. Rest of the World (Non US) contributes 11% of Total sales & 20% of International generics.
7/n
Few highlights of IG business:
a) 69 products launched in the US (22 Launched in 2019-20).
b) 10 product launches lined up in the first half of 2020-21.
c) USFDA audited the Aleor derma facility at Karkhadi without any observations.
a) 69 products launched in the US (22 Launched in 2019-20).
b) 10 product launches lined up in the first half of 2020-21.
c) USFDA audited the Aleor derma facility at Karkhadi without any observations.
d) The US business had grown at a 30% in the last 5Y & this quarter Q4FY20 had seen a growth of 84% YoY.
e) The company makes $75M per quarter revenue from US sales & the management expects it to continue the run rate
Image: US sales contribution & current growth
9/n
e) The company makes $75M per quarter revenue from US sales & the management expects it to continue the run rate
Image: US sales contribution & current growth
9/n
Domestic branded:
The company is focused on developing branded specialty medicines for the Indian market. The products cater to several chronic and acute therapies.
a) It contributes 31% & API contributes 15% of Total sales.
b) 1.5% Market share in Indian pharma space.
10/n
The company is focused on developing branded specialty medicines for the Indian market. The products cater to several chronic and acute therapies.
a) It contributes 31% & API contributes 15% of Total sales.
b) 1.5% Market share in Indian pharma space.
10/n
c) 3 Brands in top 300.
d) 9 DMFs filed with USFDA in the current FY (5 in Q4FY20), aggregated to 109 DMF filings on a cumulative basis.
e) Products cater to several chronic and acute therapies.
f) 5,000+ field executives.
g) 93% of new launches in the Specialty segment.
11/n
d) 9 DMFs filed with USFDA in the current FY (5 in Q4FY20), aggregated to 109 DMF filings on a cumulative basis.
e) Products cater to several chronic and acute therapies.
f) 5,000+ field executives.
g) 93% of new launches in the Specialty segment.
11/n
R&D Capabilities:
Highest R&D spend as % of sales (15%) when compared to the median of 8% across other pharma majors.
Alembic is one of the largest spenders on R&D. It has increased its R&D spend from 10.1% of sales in 2016 (from 320 Cr) to 14% of sales in 2020 (650 Cr).
12/n
Highest R&D spend as % of sales (15%) when compared to the median of 8% across other pharma majors.
Alembic is one of the largest spenders on R&D. It has increased its R&D spend from 10.1% of sales in 2016 (from 320 Cr) to 14% of sales in 2020 (650 Cr).
12/n
As on date, 11 Filings & 7 Approvals were contributed by acquisition of Orit, US in FY18.
1200+ R&D employees with diverse skill sets.
The ANDAs are focused more on the complex segments like ophthalmology, general injectable, oncology injectable & Dermatology.
13/n
1200+ R&D employees with diverse skill sets.
The ANDAs are focused more on the complex segments like ophthalmology, general injectable, oncology injectable & Dermatology.
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The company on an average files 25-30 ANDAs per year.
Cumulatively the company had spent ~2300 Cr in R&D in the last 5Y.
Image 1: Capacities in pipeline
Image 2: Market share of APL across segments.
14/n
Cumulatively the company had spent ~2300 Cr in R&D in the last 5Y.
Image 1: Capacities in pipeline
Image 2: Market share of APL across segments.
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Growth Drivers:
The story of shortages:
In the last 3Y, US sales grew at 30% CAGR led by the shortage of a drug called Sartans. In 2019 some of its peers struggled with issues of impurity in manufacturing sartans, the company moved quickly to capture the opportunity
15/n
The story of shortages:
In the last 3Y, US sales grew at 30% CAGR led by the shortage of a drug called Sartans. In 2019 some of its peers struggled with issues of impurity in manufacturing sartans, the company moved quickly to capture the opportunity
15/n
In FY20, the company filled 9 DMFs to take cumulative fillings to 109.
Two more drugs – Famotidine and Azithromycin have entered the shortage list & the benefits are still to be seen. The market size of Azithromycin is ~$130M in US & APL has a market share of 30% in India.
16/n
Two more drugs – Famotidine and Azithromycin have entered the shortage list & the benefits are still to be seen. The market size of Azithromycin is ~$130M in US & APL has a market share of 30% in India.
16/n
Considering opportunity it has expanded the output of Azithromycin. This ramp-up is both for the domestic & international markets. The demand for Azithromycin has shot up significantly as it is being tried to treat coronavirus in combination with HCQ in the US & Europe
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FY21 growth will be driven by new launched products in the US. For FY22 injectables & oncology capacity will come in picture where there will be EBITDA margins jump (which are already at margin 27% compared to other companies at 20% or so).
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Management Commentary:
a) The company is planning to launch approximately 10 products in the first half of this financial year.
The API business witnessed softness in 2019-20 however management expects it to post at least 15-20% growth in 2020-21.
19/n
a) The company is planning to launch approximately 10 products in the first half of this financial year.
The API business witnessed softness in 2019-20 however management expects it to post at least 15-20% growth in 2020-21.
19/n
Impact of COVID- Neutral
a) It continue with its Capex plans of Rs 370 Cr and R&D capitalisation at Rs 120 Cr for FY20.
b) Currently running at 70-80% utilization.
c) 15% overall raw material dependency from China
d) 70% normalcy of supply chain from China since March.
20/n
a) It continue with its Capex plans of Rs 370 Cr and R&D capitalisation at Rs 120 Cr for FY20.
b) Currently running at 70-80% utilization.
c) 15% overall raw material dependency from China
d) 70% normalcy of supply chain from China since March.
20/n
Financials:
a) The company had a 10Y sales CAGR of 15% & 5Y CAGR of 17.5%.
b) It has generated a 10Y PAT CAGR at 23% & 5Y CAGR at 24.96%.
c) The company is consistently dividend & tax paying company with an ROE of 29%, ROCE of 24.5%, CROIC ratio of 24.2%.
21/n
a) The company had a 10Y sales CAGR of 15% & 5Y CAGR of 17.5%.
b) It has generated a 10Y PAT CAGR at 23% & 5Y CAGR at 24.96%.
c) The company is consistently dividend & tax paying company with an ROE of 29%, ROCE of 24.5%, CROIC ratio of 24.2%.
21/n
It is having a long term borrowings of 887 Cr & is sufficiently placed to serve the interest (having ICR at 40 times)
The company has a high ROAs of 19.5%. In the last 10Y the company had made a cumulative PAT of 3845 Cr & generated a cumulative CFO of 3764 Cr.
22/n
The company has a high ROAs of 19.5%. In the last 10Y the company had made a cumulative PAT of 3845 Cr & generated a cumulative CFO of 3764 Cr.
22/n
Net Debt to Equity at 0.5. Receivable days are 68 days & Working cap is 93 days. This indicates that there is no strain on the working capital side.
EBITDA-M 27% & PAT-M17% are positioned to continue further given current mix of new launches in US
Image: Peer Comparision
23/n
EBITDA-M 27% & PAT-M17% are positioned to continue further given current mix of new launches in US
Image: Peer Comparision
23/n
Valuations:
We expect Alembic to clock a revenue of 20% CAGR to ~8000 Cr in FY23 & EBITDA by 25% CAGR to ~2500 Cr by FY23.
Assigning an EV/EBITDA of 16, gives us EV of 41k Cr & Mcap of ~40,000 Cr.
Target price of 2100/- with a potential upside of 230% (2.3 times) from CMP.
We expect Alembic to clock a revenue of 20% CAGR to ~8000 Cr in FY23 & EBITDA by 25% CAGR to ~2500 Cr by FY23.
Assigning an EV/EBITDA of 16, gives us EV of 41k Cr & Mcap of ~40,000 Cr.
Target price of 2100/- with a potential upside of 230% (2.3 times) from CMP.
Disclosure:
Wealthyvia has already recommended this stock in the month of Apr 2020 to our “5GCPM & Super Focused” clients & may have personal investments as well.
Wealthyvia has already recommended this stock in the month of Apr 2020 to our “5GCPM & Super Focused” clients & may have personal investments as well.
