Alembic & Alembic Pharma


(investingkitten) #1

Here’s my opinion

http://investingkitten.wordpress.com/2012/04/06/alembic-alembic-pharma/

For those who want to crib that I am trying to promote my blog, here are the contents of the entire scroll…

Avoid: Alembic & AlembicPharma

Posted on April 6, 2012

20120406

If I were to ask a common person whatas common between glycodin and yera glass-ware, I may get a blank face. I will get as much of a blank face if I were to ask who was the commissioner of IPL before Rajiv Shukla and after Lalit Modi? Some respondentas faces in fact would be a newer shade of white. The answer is the Alembic pair of companies and itas promoter Chirayu Amin. Rigorous googling reveals that his image is cleaner than expected, in spite of his close association with IPL.

Back-story:

Alembic Pharma (with the entire pharma business) was demerged from Alembic early last year with 1:1 shares allotted. Before demerger Alembic was available for Rs75 in Apr a11). Now the pair is available for roughly Rs70 (52 + 18). The demerged Alembic owns the aggregate loss making businesses of real-estate, fermentation-chemistry, and captive power generation (roughly 16MW).

Alembic Pharma: I donat like the fact that pro-forma fin. statements for FY10 have not been provided in the annual report. I fail to identify any strong story that can drive the business upwards. With trailing 6m PAT at 80cr and FY11 PAT at 60cr, the best guess PE is 6 which is still unpredictable if not hefty. This not a typical spin-off of the Joel Greenblatt recommended category.

Alembic: I was attracted to this stripped-down parent for real-estate. Their website directs to Alchemy (I hope not financial). Their investor relations confirmed my doubt that Alembic and Alembic Pharma have 0% share in Alchemy. To quote them verbatim, aAlchemy is a centralized resource management company providing consultancy and expertise on real-estate development projects of group/sister companiesa. Neither listed pair owns anything in Shangri-La (369 residences). Alchemy would develop real-estate as Samsara project (531 residences) on the 11 acre of Alembic land, and pay acommission feesa to Alembic in return. For the 3 reported quarters of FY12, there is zero revenue recognition from real-estate. All real-estate revenue recognition may begin from FY13 according to investor relations. I donat understand what happens to the real-estate arm of the business once the 11 acre revalued plot of land is disposed off as Samsara flats.

Punters: This would be a great play in the short-term say between 1-3m for punters when Alembic recognizes flat sales revenues and the bottom line catapults from loss to remarkable profit

Disclaimer:

I am too conservative to be attracted to such opportunities. I have zero exposure to Alembic pair of companies and do not plan to invest in them any time soon.


(Donald Francis) #2

Dr. Hitesh has been urging us several times to have a serious look at Alembic Pharma.

We all know not to take Hitesh’s well-meaning advise lightly:)

I finally had a go, and was delighted to find a very good Investor Presentation here

http://www.alembic-india.com/Investor_Presentation.php

Lets start digging. We may be able to meet this company, later this month. Hitesh - can we have some opening remarks setting the direction.

-Donald


(Hitesh Patel) #3

alembic is a company based in baroda and has been a very old company.

cmp 65, market cap around 1233 crores.

fy 12 sales at 1375 crores and net profits at 120 crores.

company is likely to post 20% cagr in next 2-3 yrs due to capacity additions and growth in exports.

Last year there was the demerger of the real estate and pharma divisions and the pharma division is handled by Mr chirayu amin’s eldest son pranav who seems to be steering the company on the growth path.

company is a leader in antibiotic azithromycin with its brand azithral being priced at around 92 for a strip of 3 tablets of 500 mg. Compared to this other brands like zithrocin and azee belonging to piramal and cipla are priced at around 55-60 per strip. There are various other products which command good market share.

Stock has run up from around 35-38 levels to current levels of around 65.

It seems a good buy on declines.


(Donald Francis) #4

Azithral itself is a 100 Cr brand!!

We came to know during Ajanta Pharma interaction that Anti-Infectives is a very competitive “kachra” segment …too many players…largest segment at 8000+ Cr.

The very fact that this company has been able to create a 100 Cr brand and is able to hold its own (manage a 50% premium) against bigger players like Cipla - speaks a few things about theFormulations capability,Management, Branding. with FY12 sales of 1371 Cr, Alembic ranks 21st in the Indian Pharma Industry.

So to me this looks a very interesting prospect to go deeper into. Post the demerger, if they get their act together…bring back some focus on growing the business…they may be able to deliver big, since the capabilities and potential seem to be there.

Hitesh - What are the overhangs?? Why does this kind of a company quote at ~0.8x Sales and 10x Earnings.

-Donald


(Donald Francis) #5

Some highlights from Alembic Investor Presentation

Branded Formulations

  • Revenue of INR 7830 millionin the domestic market forthe financial year 2011-12
  • Ranked 21st in theIndian Formulationsmarket with a marketshare of 1.75%*
  • Ranked 15th inDoctors PrescriptionUniverse**
  • Well equippedFormulations Plantlocated at Baddi,Himachal Pradesh
    • Robust product basketwith export sales ofINR 570 million inInternational BrandedFormulations
  • Strong presence inanti-infective,pain management,cough & cold,GI therapeutic groups
  • Branded FormulationsThrust on Cardiology,Gynecology,Diabetes, Orthopedics,Rheumatology andOphthalmology segments

International Division

  • Business size ofINR 6290 million in thefinancial year 2011-12
  • Sales in RegulatoryGenerics Marketof INR 2550 million
  • 1 US FDAapprovedFormulationsPlant
  • 3 US FDAapprovedAPI Plants
  • ApprovedBio EquivalenceCentre
  • Alliances with leadinggeneric players in USA,Canada, Europe, Australia,Brazil and South Africa
  • Robust product basketwith 19 ANDA approvals(45 filings) and62 DMFs
  • World-classR&D and F&Dfacility

Strategic Advantage

  • Therapy focused marketingthrough 11 marketing armson PAN India basis
  • Therapy focused marketingthrough over 3,300 field forcecovering over 1 lac doctors
  • Strong partnershipand alliancein Generic space
  • Long termrelationship withAPI customers

(Hitesh Patel) #6

Donald,

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I think part of the reason for these kind of valuations is due to the slow almost static growth shown by the company previously. This could be the market perception but I think the company is now on the cusp of strong growth with the newer generation taking over plus increased focus due to demerger of the property etc division.

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Just to give u an example, another company based out of baroda, sun pharma currently has market cap of close to 70000 crores and I think it started out much after Alembic Pharma.

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**The valuations are at par with other similar sized companies like ajanta, fdc, unichem etc. **

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And the main strength of the company is antibiotics especially the macrolide antibiotics namely azithromycin, roxithromycin and earlier erythromycin and the antibiotics space has been seeing very strong cut throat competition.

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Place to be in the pharma space is the newer areas like derma, ophthalmology, cosmetology, psychiatry etc where there is bound to be stellar growth even from here. I guess thats where companies like ajanta and unichem are better placed.

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hitesh.

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(Manish Vachhani) #7

Alembic got into product development & licenseagreement with Accu-Break Pharmaceuticals USA.

http://www.bseindia.com/xml-data/corpfiling/AttachLive/Alembic_Pharmaceuticals_Ltd_080812.pdf


(Vinod MS) #8

Hi,

Was studying the Alembic AR and investor presentation. Is there any general pharma sector report which details what the different segments are? I want to know what exactly is API, Generic, Branded Formulations etc and the competitive forces involved in each of these.

They havementioned “International Division” separately. Is this international subsidiaries or exports?

My understanding is that growth in sales and profits will come from catering to international market (higher margin, offpatent opportunities)- API (presume this is an ingredient for someone elses brand), partnering foreign cos for selling generics (manufacturing existingmedicineand selling as aforeign co’sbrand?) and exporting their own brand. Is that correct?

If international market is the source of growth could we compare noof filed and approved ANDAs of competitors and also the prospect of each of these filed/approved ANDA?

I am sorry I am totally ignorant about this sector…Dr pls help

Cheers

Vinod


(Hitesh Patel) #9

API is active pharma ingredient. This is the raw material used in making the formulations.

eg for chloroquine tablets, someone has to make chloroquine powder in bulk. that fellow is the api supplier. e.g of api players are aurobindo, jubilant life, divis, dishman and many other companies.

ANDA is abbreviated new drug application. This is an application to USFDA for getting approval from them to supply a drug in the US market. Usually norms are very stringent here.

regarding growth in alembic is concerned I think you have got the right track-- I too expect them to grow much better in the exports as compared to the domestic scene.

Somehow I dont seem to see too much aggression from their MRs as compared to say unichem or ajanta or Dr reddys or ranbaxy fellows.


(Nadakarni) #10

Hitesh,

If we had to pick one company among Ajanta, Unichem and Alembic - on conviction and valuation which one would be that ?

Regards


(Hitesh Patel) #11

difficult call to take after the run ups in all the three stocks.

But if it boils down to only one stock to be selected, I guess it would be ajanta followed by unichem and then alembic.

stock price in the short term though may not follow the above order of preference. I think unichem could outperform in the short term as it seems to be on the verge of a breakout. Once it gets past the resistance at around 160 there could be sharp upside. Maybe something to do with results?? which are due on 11th.


(Vinod MS) #12

Hitesh, thank you.

I am sure you are one Dr who will be happy to see the MRsas much asseeing the patients:)

Could relate to how you are using your “edge” as Lynch emphasized in One up on wall street. B/w that is my favorite book so far in my limited reading experience.

Does an ANDA comparison and analysis of prospect of ANDA depending on the end user segment (like you mentioned Derma is high potential segment) possible with publicly available info?

I think Alembic is better than Jubilant at current price, but not sure about Unichem (P/E has crossed 15 now, but asyou mentioned its a turnaround kind of story, so expect far better growth than industry) and even FDC.

Cheers

Vinod


(Hitesh Patel) #13

vinod,

I didnt get your question about anda.

regarding comparision between jubilant and alembic, I think yes alembic can be a better bet since it does not have the big debt jubilant have plus it doesnt have the currency headaches as well.

valuation wise, alembic has done eps of around 6.9 for fy 12 and expected to do around 7.9-8 for fy 13. real kicker will come from fy 14 onwards as capacities come on stream.

You can view some updates on alembic on indianivesh website. these guys track the company very keenly.

http://www.indianivesh.in/Research/ViewResearch.aspx?id=1

regards

hitesh.


(Vinod MS) #14

Thank You Hitesh,

Regarding ANDA what I was asking was whether it is possible to evaluate a company’s prospect by understanding for which formulations it has filed ANDAs and compare b/w pharma cos on the strength of ANDA pipeline. Willa simple comparison of no of ANDAs filed/approved be enough? Isnt itimportant to estimate the sales potential of each ANDA?

Thought this was essential taking into account theinternational segmentstory.

Cheers

Vinod

disc: I have taken starter position in Alembic


(Hitesh Patel) #15

vinod,

alembic i think has filed for around 49 filings out of which 29 are pending approval.

it will be very difficult to find out what market potential of each molecule is.

But looking at the strike rate, if 20 out of 49 are approved I think it should be considered a good thing.

technically stock is retracting from selling pressure after posting all time high of around 66 after its listing post demerger. Now it is taking support at its earlier swing high around 58. Upmove should resume post some consolidation unless there is some real bad news related to company or markets.

Even at these all time high levels stock doesnt seem too expensive at around 8-9 times trailing PE and hence more chances of upmove resuming.


(Vivek Gautam) #16

The company has good product rangeand have brandlike Zeet,Glycodin, Althrocin etc.It is the market leader in India on the Macrolides segment of anti-infective drugs. The manufacturing facilities of Alembic are situated in Baddi (Himachal Pradesh) and Vadodara or Baroda in Gujarat. The facility at Baroda is famous for housing the biggest fermentation facility in the country. The Panelav plant is home to the formulation manufacturing and aspartyl protease inhibitor (both recognized by US FDA) facilities. The Baddi (Himachal Pradesh) plant is used to make preparations for the non-regulated export market and regional markets. A modern research hub has been set up in Vadodara.

My Favourite medicine for Thorate infection is Althrocin which is very effective.


(Vivek Gautam) #17

Alembic Pharmaceuticals, on Friday said it along with US’ Breckenridge Pharmaceutical Inc has settled patent case with Novartis for Rivastigmine Tartrate capsules used for treating dementia.

The companies have settled their Paragraph IV patent litigation with Novartis for Rivastigmine Tartrate capsules which are a generic version of Exelon capsules of Novartis, Alembic Pharmaceuticals said in a filing to the BSE.

Under the terms of the settlement agreement, Novartis has granted the two companies a licence to market their generic capsules before the date of the patent expiry, it added.

The companies will launch the product immediately in the American market, Alembic Pharmaceuticals said.

United States Food and Drug Administration has approved their abbreviated new drug application (ANDA). While the Indian firm is the sponsor and manufacturer of the ANDA, the product will be marketed exclusively by Breckenridge.

Rivastigmine Tartrate capsules are prescribed for mild to moderate dementia of Alzheimer’s type and mild to moderate dementia associated with Parkinson’s disease, the company said.

The product will be available in the strengths of 1.5 mg, 3 mg, 4.5 mg and 6 mg, it added.


(Saurabh Srivastava) #18

The turnaround is supposed to be effective in FY14 so is good to pick now? The growth rate for FY13 is indicated by management to be 15% in FY13.

Any other immediate trigger for Alembic?

Wouldn’t a Jubilant Lifescience be a better play for medium term?


(Hitesh Patel) #19

alembic does not have the baggage of huge debt or forex problems that jubilant has. plus alembic has a big presence in the retail prescription market.

jubilant is more into bulk drugs and APIs etc.

regarding triggers for alembic, I think there are a lot of sectoral tailwinds in the pharma sector which seems to be going through an unnoticed bull phase with a lot of stocks in the sector posting life time highs.

specific to alembic, triggers would be the performance of the company in the domestic markets with them launching the new dermatology segment. One needs to see what kind of products they come out with.

growth rate as i earlier mentioned is likely to be tepid in fy 13, but likely to pick up from fy 14. at cmp of around 60, it looks a good buy with a view to add more on declines.


(Saurabh Srivastava) #20

Donald,

A couple of articles from Moneylife suggest that Alembic overprices Azithral.

Since in India doctors prescribe brands instead of generic names, would there be an issue here or would this be sustainable. A patient typically would opt for cheapest available unless the brand is advertised and over the counter e.g the cold medicines

theFormulations capability,Management,