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As Alembic Pharma’s Shares Rose To A Record, Here’s A Look At The Drivers

Alembic Pharma’s shares rose to a fresh high last week led by strong earnings and robust outlook for next fiscal.

General views of drugs (Photographer: Dhiraj Singh/Bloomberg)
General views of drugs (Photographer: Dhiraj Singh/Bloomberg)

Shares of Alembic Pharmaceuticals Ltd. rose to a fresh high last week on the back of improved earnings, robust outlook for the next fiscal and favourable valuations.

The company’s shares have rallied around 39% in the past month and have more than doubled from their low of Rs 434.80 apiece on March 23. It had hit an all-time high of Rs 915 a share on Thursday.

As Alembic Pharma’s Shares Rose To A Record, Here’s A Look At The Drivers

Here’s a look at the factors behind the rally...

Earnings Growth

The Gujarat-based drugmaker reported its highest revenue, Ebitda and net profit in 2019-20 aided by strong growth in its U.S. generics business—that contributes nearly half of its revenue. The segment grew 53% over the previous year aided by new launches and continued traction from Sartans—a class of drugs used in the treatment of blood pressure and heart failure.

“It was a remarkable year for the company where we recorded our highest revenue and profit ever,” Managing Director Pranav Amin said in a statement. “During the fourth quarter, we saw our India and ROW (rest of world) business also getting back to a robust growth.”

Yes Securities lauded the company’s high revenue growth outlook for its domestic and global businesses. “We believe Alembic Pharma fits the bill of companies having high revenue visibility as it forays in to oncology and general injectables and improves the revenue mix in three years,” it said. “Expect (its) U.S. business to clock 20% (CAGR, excluding Sartans) over the next four years to touch $450 million in FY24. Domestic business should rebound and our recovery case is premised on strong close to Q4FY20 as well as positive management commentary.”

U.S. Business

Analysts expect the company to scale up its U.S. business. The drugmaker said at the post-earnings call for the quarter ended March that it plans to launch 10 new products in the U.S. by the year-end and revised upwards its guidance for the country by 27%. “With U.S. revenue consistently exceeding $70 million in the last three quarters, the management has revised its revenue guidance upwards with the new base expected to be sustainable,” JM Financial said in a recent report.

Alembic Pharma’s domestic business, which grew 13% year-on-year, is expected to sustain its performance driven by high demand for azithromycin—used to treat bacterial infections—and its cold & cough portfolio, according to most analysts.

Its valuations, too, remain favourable. “The stock currently trades at valuations of 16.6 times FY22 estimated earnings, in line with an average P/E of 20.3 over the past five years,” ICICI Direct said in a report.

Concerns

Yet, concerns persist—primary among them being the implications of the U.S. drug regulator’s inspections of its facilities.

The U.S. Food and Drug Administration inspected its facility at Panelav, Gujarat and issued a Form 483—a kind of inspection letter—with four procedural observations, PTI had reported in March. That, according to analysts, is a factor that needs to be monitored.

Analysts tracked by Bloomberg expect the stock to decline 7.5% over the next 12 months as a recent rally pushed its current stock price above the consensus estimate of Rs 797.5 apiece.