After strong FY20, Alembic Pharma's FY21 outlook, too, remains firm

The revival in domestic market growth has helped steady the ship for Alembic Pharma
Alembic Pharmaceuticals’ (Alembic Pharma’s) strong performance, led by its US and India businesses, saw the stock gain over 8 per cent on Friday, and another 7.7 per cent on Monday. While the results showed no impact of coronavirus disease (Covid-19)-led disruptions (either on supplies or raw material), the company has sustained double-digit growth trajectory in the March quarter (Q4) after witnessing volatility in the past.

The revival in domestic market growth has helped steady the ship for Alembic Pharma, which has continued to see regular traction in the US. The branded India sales (28 per cent of overall) grew 13 per cent year-on-year (YoY) in Q4, ahead of India’s pharma market growth.

The supply-chain streamlining is now over and strategic changes made by the company are beginning to show results. The company expects its diverse portfolio, with steady pipeline of specialty medicines, to support growth. Analysts expect double-digit growth to continue, with market-share gains.

The US generics — contributing about 48 per cent to overall revenue — continues to see traction, with 84 per cent YoY growth in Q4.

Sartan (hypertension drug) is a big part of the portfolio and the next three to six months should remain strong, even as competition is increasing due to high demand, say analysts. Generics of Uloric (for treating uric acid problems) and Famotidine, where Alembic has high realisation, too, have seen strong performance.

Though the Sartan opportunity may taper over time, new launches, especially of products like anti-bacterial Azithromycin, will continue driving the show ahead of competitors. Azithromycin was also indicated to be helpful in treatment of Covid-19 in combination with anti-malarials. This had kept the Street’s hopes buoyant.

Analysts say that after delivering a strong beat in the US for the seventh quarter on the trot, Alembic has now clearly set a new base, with quarterly revenue of around $70 million versus $50 million earlier in the US.

“Alembic’s US business could continue to outperform, with about 20 new launches (including Azithromycin) expected in 2020-21 (FY21), which is in line with their past year performance and meaningfully ahead of even the larger peers,” say analysts at JM Financial.
The company is well-placed to exploit supply disruption-related opportunities in the US and is likely to finish its large capital expenditure project to enhance new dosage offerings and volumes in the world’s largest health care market. To be completed in the second half of the current financial year, the enhanced capacities will drive 2021-22 (FY22) growth.

Alembic Pharma saw net sales grow 30 per cent during Q4, while net profit grew 81 per cent, led by expansions in earnings before interest, tax, depreciation, and amortisation margins to 28 per cent, from 19 per cent a year back. With this, the company ended 2019-20, with net sales growing 17 per cent to Rs 4,606 crore, and net profit by 47.7 per cent to Rs 864.3 crore, over the year-ago period.

Analysts at Motilal Oswal Financial Services have increased their earnings estimate by 11.4 per cent and 6.2 per cent for FY21 and FY22, respectively, to factor in the favourable outlook for its base portfolio and new launches in US generics. The stock at Rs 818 is trading at 19x its FY22 estimates.

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