Value Pick: Brokerages bullish on Alembic Pharma stock; up to 30% upside on back of new launches, steady growth potential

New launches and a steady growth trajectory make Alembic Pharmaceuticals a value pick for several brokerages. In this regard, domestic brokerage houses such as YES Securities, ShareKhan, and Nirmal Bang see an upside of up to 30 per cent in the share price. 

On Tuesday, Alembic Pharma arm got US FDA final nod for Lidocaine & Prilocaine cream USP, which is used to cause numbness before medical procedures. 

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The stock ended 2 per cent lower at Rs 762.45 per share on the BSE on Tuesday.

YES Securities 

We presume the margin to remain range-bound in FY23 followed by an increase in FY24 as general and especially onco injectables start contribution. With Panelav (plant in Gujarat) commissioning pushed out to probably FY24, we trim US sales, costs that would hit P&L (profit and loss) leading to a 14 per cent cut to the FY24 estimate.  

Albeit, strength in domestic business especially without much Covid contribution and bottoming out of US sales should provide a base to earnings. Retain Buy on 25x FY23 EPS as optimism on the US pipeline is reflected in a healthy multiple, and see 30 per cent upside with Rs 1000 apiece target. 

ShareKhan 

Alembic’s domestic and global generics business is well poised to stage a strong growth ahead, with the management eyeing $400 million in sales from the US by FY25. Cost rationalization measures would result in operating margin expansion, which in turn could result in a 38 per cent PAT (Profit After Tax) CAGR (Compound Annual Growth Rate) over FY22E-FY24E, better than most of its peers.  

At the current price, the stock is trading at a multiple of 22.8x/18x/12x its FY22E/FY23E/FY24E EPS, which is at a discount to most of the peers and a P/E of 12x its FY24E EPS is lower than the long term historical average multiple.  

We believe Alembic is a value pick based on its strong presence across both the developed and developing markets and bright growth prospects while attractive valuations provide comfort. We initiate a viewpoint coverage on Alembic and see a 5 per cent upside with Rs 807 apiece target. 

Nirmal Bang 

Alembic Pharma’s US business is expected to grow in early FY23, led by the launch of a few FTFs (First to File). It has also received approval for its first inhalation product, Formoterol Fumarate, which it expects to launch in 1QFY23.  

These new launches will be able to grow the company from its current base while being margin accretive. Domestic market growth was 17 per cent YoY (Year-on-Year), which was ahead of expectation.  

The company has guided to a target of beating the IPM (Integrated Project Management) by 5-6 per cent, and currently building in domestic growth for Alembic Pharma at around 10-11 per cent in the next two years, and maintain Accumulate rating on Alembic Pharma.