US generic business is quite unpredictable and I do not rely on management guidances because of the inherent business characteristics. I think I mentioned this in my post on Alembic.
Alembic’s strategy is to gain from shortages, which means their growth will always be lumpy in nature. We saw this in 2016 when they gained from abilify shortage, then in 2020 when they gained from sartan shortage. This is clearly visible in US revenues per product launched, we see a jump in these years (more evident in FY16). I expect such a thing to happen again in the next 3-4 years, I just don’t know when or why.
| FY15 | FY16 | FY17 | FY18 | FY19 | FY20 | FY21 | |
|---|---|---|---|---|---|---|---|
| US revenue (cr) per launch | 12.15 | 36.11 | 24.84 | 20.91 | 24.30 | 26.00 | 23.51 |
Additionally, Alembic is positioning themself to benefit from this strategy by trying a large number of things (injectables, oncology, onco APIs, EU APIs, etc.). I have also been pleasantly surprised by their Indian business turnaround, this used to be a sore point in the past. And amidst all the pharma API problems, they have maintained gross margins in excess of 70%. This shows they are not going for volume (but for value). So overall, I feel comfortable holding (and adding to) my Alembic position.
All this said, market will only rerate Alembic when it sees execution (in form of actual profits earned). My only long term worry is market might start treating Alembic’s business as an Aurobindo which can lead to structural derating (this is also a worry I have for Laurus). I don’t think that should happen to Alembic which makes gross margins of 70%+ and ROCEs in excess of 20%, whereas Aurobindo’s gross margins are below 60% and ROCEs are in the 15-20% range. Lets see how future unfolds.