EUR 120.00 For Business Accounts Only

MOSL: ALEMBIC PHARMA (Neutral)-Niche opportunity in US drives earnings

(ALPM IN, Mkt Cap USD1.6b, CMP INR590, TP INR640, 9% Upside, Neutral)

Major capex for US done; products filings – a WIP
** ALPM has largely completed its huge capex (~INR25b) program catering to the US generics market. Meaningful commercial benefit is likely to accrue FY22 onward.

** We raise our EPS estimate by 12.8%/2.4%/1.2%/ for FY20/21/22 to factor in the improving medium-term business prospects from limited-competition products in the US. We cut our P/E multiple to 17x (prior: 18x) to factor in the weakness in the domestic formulation segment. Maintain Neutral due to the limited upside from current levels.

US formulation drives growth; India business remains weak
** Revenue grew 19% YoY to INR12.1b (our estimate: INR11.4b) in 3QFY20, led by International Formulations (+48% YoY), supported by the US (+61% YoY; 43% of sales) and Non-US (+15% YoY; 12% of sales) segments.

** However, muted growth in India (1% YoY; 30% of sales) and API business (-14% YoY; 15% of sales) dragged growth to some extent.

** Gross margin shrank marginally by 30bp YoY to 75% due to the change in product mix. EBITDA margin expanded 310bp YoY to 27% (our estimate: 25%) led by lower employee cost (-70bp YoY) and other expenses (-470bp YoY), partly offset by higher R&D expense (+110bp YoY). EBITDA increased 34% YoY to INR3.2b (our estimate: INR2.8b).

** PAT grew at a higher rate of 38% YoY (v/s EBITDA growth) to INR2.3b (our estimate: INR1.9b), further supported by a lower tax rate.