Alembic Pharma Management Q&A
We have an US CEO who has been with us for last 5 years and assembled together a top Team in International Generics business. Success has come because of Product Identification
ability. Year-wise market-wise plans are drawn up till 2024
We have built a strong IP Culture/Team over last 5 years or so.
We have been following Alembic Pharma for last few quarters. We mentioned about the company in our Diwali post.
Alembic Pharma is among the oldest companies in the Indian pharma industry. But no major developments took place over the last decade as the company was more into the domestic markets, and limited to the anti-infectives, cough and cold segment which are highly competitive and matured. Over last 2-3 years there has been a contrasting change in the company. The revenues are growing (earlier the growth was 10% now it is 20-25%), the margins are expanding (earlier margins were 13-15% now it is 18-20%) and the balance sheet is getting stronger and efficient.
Reason for the change is the shift towards the international generics. This segment is expanding quite quickly for the company – from about 100 odd Cr in 2010 to 235 Cr in 2013 to 450 Cr in 2014 (expected). This segment has a potential to scale up to 1000 Cr turnover over the next 2-3 years given a strong product pipeline prepared by the company. Alembic Pharma has filed 60 ANDAs (just 18 five years back and 31 are approved till date). On the domestic side, the company has been entering the specialty segments such as Ophthalmology, Cardio, Anti-Diabetic etc, which have a higher growth and a better margin.
Another key thing to observe is the high spend on R&D and yet improving margins and profitability:
|R&D Exp as % of Sale||3.95%||4.01%||4.84%||6.12%|
Quarterly result updates:
1. Ajanta Pharma: The company has once again posted a superb set of numbers beating the best of the expectations. The investor presentation provided by the company is highly informative about the business model and one should have a look at. Going by the numbers, the company may end the year with an EPS of about 55-60+ and stock becomes attractive at about 900 levels. One risk to watch out for is the sustainability of margins going forward.
2. Avanti Feeds: The company has posted a stellar set of numbers. Due to the several risks which popped up during the last couple of quarters, we were expecting earnings to get temporarily hit but the company has posted an all time best quarterly result! The company has been able to maintain the 90% CAGR growth rate of over last 3-4 years. We feel the company has good potential even from current prices.
3. Atul Auto: The company has been able to maintain the growth rate at about 18-20%. It is remarkable to see the company growing and gaining market share in such a challenging environment wherein most of the other players are experiencing pressure on margins and reporting a negative growth. Atul Auto has robust cash flows and is focusing on expanding its dealer network and penetration in new states. Given the current capacity, the company has potential to increase its turnover by another 25-30% without incurring any substantial capital expenditure.
4. Astral Poly: Astral has been one of our best performers and a multi-bagger stock. The company has again delivered a 30% growth. Due to the reduced forex volatility, the forex losses too have come down a bit. The stock has undergone a lot of PE re-rating and the stock is trading at about 27-28 times FY14E earnings now. Though there is still a visibility for growth in coming years, we start getting cautious at high PE multiples. One may do small profit bookings on rises.
5. Canfin Homes: The company has once again posted a superb growth of 50%+. The current management has been doing excellent work but the stock is not getting its due recognition due to the fear of a PSU tag. If we look at the financial ratios, the Gross NPA are very low at under 1% and falling continuously. We feel the valuations are attractive and the stock may do well.
6. GRP : GRP had been going through a very rough patch over the last 1 year due to the demand slowdown and the capex done last year at Tamil Nadu. On the positive side, the things seem to have stabilized and the company is recovering quickly. GRP has delivered almost 30% topline growth in this quarter though the margins are still under pressure. Its tough to take a call as to how soon the margins will come back but we continue to be optimistic about the long term horizon.
7. Oriental Carbon: The company has after a long time come out with a very good set of results. We feel the right way to look at the numbers is to look at the earnings for the 9 months of FY14 till now. The earlier quarterly results were subdued due to forex provisions and this quarter results are better due to some forex reversals. Company has been a beneficiary of rupee depreciation and should see better margins going forward. One key risk is the pending court case on the Mundra plant.
8. Selan Exploration: In the last post we mentioned about Selan. In the Q3FY14 results, though the numbers are flat but by way of notes to accounts, the company has confirmed that it has drilled 6 new wells and further activities are happening. Its a big positive as the company used to do a production of around 2.50 Lac barrels per annum till 2010, but due to lack of regulatory approvals for new drilling over last 2-3 years and oil wells being “declining in nature” the overall production fell each year for last 3 years.
|Year||Crude Oil||Gas||YOY Growth|
Since the approvals have started coming in now, Selan might be able to scale up production to 5 lac+ barrels per annum over the coming years. One should keep a watch of this company.