For Q1FY09, Alembic posted net sales of Rs226.3 crore registering a growth of 32.7%. However, the same was not reflected at the net profit level, as the company registered a substantial decline in operating margins coupled with forex losses, which dragged the company into red during the quarter.

During the recently concluded quarter, the company registered a net loss of Rs4.7 crore. A substantial part of the same was on the back of the Rs10 crore forex losses booked by the company.

While a part of the same was on account of the translational losses booked it for foreign loans, a major part of the same was attributable to the currency swaps entered by the company.

The dip in Gross Margins during the period came on the back of a decline in domestic formulation sales.

Alembic has re-aligned its business model to leverage the opportunities available in the pharmaceutical sector. Over the years, the company has also invested in R&D and built infrastructure to cater to the Regulated markets.

The company is now through with its investment phase. We believe that it is at inflexion point and fructification of its initiatives would further enhance the quality of its earnings and profitability. At Rs45, the stock is trading at 6.3x FY2009E and 5.5x FY2010E earnings. We recommend a BUY on the stock with a 15- month target price of Rs74.