MOSL: ALEMBIC PHARMACEUTICALS (Neutral)-Pick-up seen in non-US international, domestic business

Alembic Pharmaceuticals: Pick-up seen in non-US international, domestic business; low base helps

(ALPM IN, Mkt Cap USD1.6b, CMP INR568, TP INR540, 5% Downside, Neutral)

• Earnings lower-than-estimate despite support of low base in domestic business: ALPM’s 1QFY19 revenue increased significantly by ~33% YoY to INR8.6b (in-line), primarily driven by the non-US international and domestic businesses. Gross margin shrank 154bp YoY due to a change in product mix. However, EBITDA margin improved ~190bp YoY to 17.5% (est. of 20.9%), led by a decline in employee expense by ~530bp (as % of sales). This, however, was somewhat offset by higher other expense (+190bp). EBITDA grew ~49% YoY to INR1.5b (est. of INR1.8b). Higher depreciation and tax rate led to PAT growth of ~36% YoY to INR905m (below est. of INR1.1b).
• Domestic business shines: Domestic business (38% of total sales) grew 40% YoY to INR3.3b, driven by strong growth in the acute (+45% YoY) and specialty (+38%) segments. International business (41% of total sales), too, grew robustly by ~25% YoY to INR3.5b. International business growth was largely led by the non-US segment (36% of international business; +79% YoY), while US business grew modestly by ~7% YoY. Growth in the non-US business was led by an increase in market share of local partners. API business grew ~39% YoY to INR1.8b, supporting growth to some extent.