I hope you have atleast read the annual report of Alembic pharma for FY 20. This is the least an investor contemplating an investment in the company can do. (for any company per se). If that were the case, there are some interesting insights for anyone to see which will explain the issue with FCF generation. I think this might have been covered by someone in the relevant thread, but I would like to put forward my observations.
From FY 15 to FY 20, gross capex amounted to nearly 3000 crores. (2940 crores to be exact.) R&D spends from last 5 years totals nearly 2700 crores.
Above two figures are the basic building blocks for any company to grow in the pharma exports market. What is needed for success in regulated markets?
Approvals for as many molecules as possible. – ANDA for US. You can track the no of ANDA approvals in last 5 years for alembic and look at the trajectory.
USFDA (and other authorities) approved and compliant facilities.
Very good marketing team in the US (and other export geographies) who know how to exploit opportunities.
For all these to happen, the company needs to invest heavily in facilities and R&D which Alembic seems to have done quite well.
And if one reads the annual report, it is clearly mentioned that company has finished its latest mega capex of nearly 2000 crores in 2020-21 which will lay foundation for strong growth in ensuing years.
What happens now onwards? Maintenance capex is around 200-250 crores and putting up additional lines for injectables, increasing capacities for API etc would entail capex of around 150-200 crores annually. So per year, company will have total capex of 400-500 crores. Against that, consider the figures of expected net profit figures and you will get an idea about the kind of FCF it is capable of generating.
Looking only at the FCF figures and that too without taking the effort to go through the details from annual report (screener is a wonderful tool for those who know how to use it but also is a tool for guys to become lazy and have figures at the click of a button without looking at the complete figures. And here too, there could be errors so it is better to counter check from company published documents like AR, presentations etc. ) is like blind men describing an elephant from different vantage points. The guy holding the tail will say elephant is soft like a snake while the guy holding the tusks will describe it hard as rocks.
I have stressed earlier also on the importance of looking at the complete picture of a company rather than focussing on only a single parameter. For this one has to get the hands dirty and read the annual reports, listen to concalls, go through presentations, do scuttle butt etc. (whatever from the list is possible) and then take an informed mature decision.
Hope this helps.