Alembic Pharma: Improving US sentiment; robust India outlook

4 Jul 2023 , 11:51 AM

Analysts of IIFL Capital Services hosted Alembic Pharma at IIFL’s Investors’ Conference in Ahmedabad. While the last 2 years have been tough for Alembic primarily led by 30-40% price erosion in the US portfolio (esp. Sartans), there is some semblance returning to the US generic market as recent drug shortages & product exits by manufacturers (portfolio rationalisation/facility issues) have raised the spotlight from US customers on ensuring product supplies, rather than pricing alone. With price erosion expected to hold steady at high single-digits and Alembic targeting 60 70 new product launches from the US plants, mgmt is hopeful of achieving its earlier US revenue target of USD400mn in FY26/27 (vs USD200mn reported in FY23). India business is also expected to outperform IPM with growth of 13-14%, driven by focused approach on key brands and chronic segments implemented by the new leadership team in the domestic business. Analysts of IIFL Capital Services upgrade FY24/25 Ebitda by 5/1% and maintain their ADD rating (TP of Rs665, pegged at ~19x 2YF EPS).

Moderating intensity of US price erosion: 

US price erosion was severe in FY22/23. This is because market was flushed with a multi-decade level of high inventories and manufacturers started liquidating products at 80-90% discounts, as drugs were nearing shelf expiry. Price erosion has reduced for Alembic as well vs past 2 years to <10% now. Mgmt indicated that only certain segments have drug shortages and Alembic has seen certain good opportunities in Derma and Ophthalmic segments.

Hopeful of achieving US revenue target of USD400mn in FY26/27:

Over the next 3-4 years, Alembic intends to commercialise 15 products from each of its 4 new US plants, thereby potentially creating a portfolio of 60-70 products from the new plants by FY26/27. While Alembic’s 7 injectable launches have seen intense competition (including Ketorolac) till now, mgmt is optimistic of achieving US revenue of USD400mn in FY26/27 driven by a steady mix of OSD and injectable products. Analysts of IIFL Capital Services current estimates factor-in only USD260mn US revenue in FY26 vs USD200mn reported in FY23.

R&D optimisation to offset the impact of facility costs: 

Alembic will incur Rs2-2.5bn of fixed operating costs related to its new US plants in FY24. However, mgmt expects to offset this impact through Rs1.5-2bn reduction in R&D spends over the next 2 years, as Alembic has rationalized late-stage pipeline for 2030-32 where more than 15 generic players were expected. This would aid in sustaining Ebitda margins at 16%.