CMP (NSE) 15:53, 21 Jun
Pharmaceuticals & Drugs
Last updated on
06 Jan, 2021
Strong all-round earnings: Alembic’s 2QFY21 Ebitda was 32% ahead of our estimates, led by continued strong growth in the company’s RoW/API business and ~380bps sequential improvement in GMs. The company also staged a strong recovery in the India business as well, with the domestic formulation sales growing 6% YoY in 2Q vs. a decline of 6% YoY in 1Q. Covid-related Azithromycin sales benefitted the India business, due to which Alembic’s anti-infective segment posted growth of 16% in 2Q (secondary data) vs. the market decline of 13%. We estimate that incremental India business sales of ₹1 bn QoQ came at almost 95% GMs (due to Azithromycin sales), which helped Alembic improve its overall GMs QoQ from 75% to 79%.
Management’s guidance and Valuation: Management provided an EPS guidance of ₹60/₹50 (13% higher than our previous estimate) for FY21/22ii, respectively, assuming ₹4.5bn of incremental operating expenses related to the 4 new US facilities that are expected to get commercialised in FY22ii. Management’s EPS guidance for FY21/22 suggests that the recent earnings momentum and margins will largely sustain this year. Based on the company’s guidance, we have raised our FY21/22/23ii EPS by 20/13/16%, respectively. Shares of Alembic Pharma are currently trading at a P/E of ~18.2x/21.4x on FY21ii/22ii earnings. We recommend a “BUY” rating on Alembic Pharma with a target price of ₹1,252.
Technically: Alembic Pharma is trading at a strong top higher bottom chart structure on the weekly chart and is now on a verge of giving a big bullish consolidation breakout. The stock has consistently made a base around its 89DEMA, currently placed at 981 level which could act as a strong support level for the stock in the medium term. If the current impulse move accentuates the way it should, we expect Alembic Pharma to trend higher and test our immediate target price of ₹1,252.