ICICI Securities downgrades Alembic Pharma stock to HOLD, target price Rs 984

ICICI Securities said that Alembic Pharma reported Q4FY21 performance largely in line with estimates, though EBITDA margin was higher due to lower operating costs. Revenue in US was below expectation at US$63mn due to competitive pressure and the management indicated the US revenue quarterly base would be between US $55 - $60mn. Consolidated revenues grew 6.1% YoY to Rs 12.8 bn , adjusted profit grew 7.6% YoY to Rs 2.5bn and EBITDA margin dropped 40bps YoY to 26.7%. ICICI Securities remains positive on the long-term outlook considering revival in India growth, focus on complex and niche R&D, and track record of healthy return ratios. However, increased competition in sartans and start of new plants would impact earnings growth in medium term. ICICI Securities said that it has downgraded Alembic Pharma to HOLD with a revised target price of Rs 984/share.

Alembic Pharma 4QFY21 operational performance was marginally below estimates, largely due to lower traction in US / Domestic Formulation (DF) sales. Alembic Pharma awaits feedback from the USFDA on the resolution of observations at the recently inspected injectables Unit. Motilal Oswal has tweaked its estimates for FY22/FY23, factoring in a slowdown in US sales and lower expense of operational cost related to newer facilities. Motilal Oswal continues to value ALPM at 19x 12M forward earnings to arrive at target price of Rs 1070. Motilal Oswal maintains Neutral rating on a limited upside from current levels.

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ICICI Securities says it believes near-term (FY22-23E) earnings performance would be impacted by reducing sales of sartans in the US, continuous investments in R&D and additional costs (Rs3-4bn annually) when new plants become operational. However, these costs would be absorbed over the medium term as approvals start resulting in increasing capacity utilization. ICICI Securities expect PAT to decline 9.4% CAGR over FY21- FY23E despite growth of 8.2% CAGR in revenue.

ICICI Securities says it has cut EPS estimates by 3-4% for FY22E-FY23E to factor in lower US sales with declining contribution of sartans. ICICI Securities also indicated it had downgraded the stock to HOLD from ADD level with a revised target price of Rs 984/share.

Key downside risks are:

Regulatory hurdles and delay in new plant/product approvals

Key upside risks are:

Faster approval of new plants and products