Hold Alembic Pharma; target of Rs 530: ICICI Direct
ICICI Direct’s research report on Alembic Pharma
Revenues declined 10% YoY to Rs 789 crore (I-direct estimate: Rs 846 crore) mainly on account of 26% YoY decline in the export business to Rs 262 crore (I-direct estimate: Rs 277 crore). Domestic sales increased 6% YoY to Rs 385 crore (I-direct estimate: Rs 396 crore) EBITDA margins improved 248 bps YoY to 22.7% (I-direct estimate: 18.0%) mainly due to lower other expenditure. EBITDA increased 1% YoY to Rs 179 crore vis-à-vis I-direct estimate of Rs 152 crore Net profit increased 2% YoY to Rs 122 crore (I-direct estimate of Rs 105 crore), mainly in sync with the operational performance.
A steep price erosion in the US and slower-than-expected GST recovery impacted Q2. The margins saw an improvement mainly on account of lower other expenditure. With the announcement of aggressive R&D and capex plans, the management has signalled the long term strategy for the next five to six years, especially on the US front. This includes a foray into niche areas like oncology, injectables, derma, etc. We believe this is fraught with a new set of challenges. The benefits are most likely to be back-loaded. Immediate cash-burn is likely to weigh on sentiments in the near term. We roll over to FY20. Accordingly, we arrive at our new target price of Rs 530 based on 18x FY20E EPS of Rs 29.4.
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