Any major restructuring exercise brings benefits eventually, but usually involves some short-term pain. That is Alembic Ltd’s predicament. The Rs1,116 crore by revenue pharma firm reported an 18.4% drop in net sales and a 43.2% drop in operating profit in the September quarter. But a comparison with the June quarter gives a different picture; while sales declined 2.4%, operating profit grew 12.4%. In the previous fiscal, the firm had restructured its domestic formulations business, which contributes to nearly half its revenues.
The company claims that its business has become stronger, with a more sustainable growth outlook. For instance, it lowered its trade inventory. So although primary sales to distributors grew by only 12% in the April-August period, Alembic’s retail sales grew by 23% while the market grew by 14%. Having lower inventory has other benefits, as it lowers the collection cycle and improves cash generation. That is perhaps why in the first half, the company’s net interest costs have fallen by 22%.
The base effect on Alembic’s results will wear off after the December quarter and its domestic formulations business should return to year-on-year growth in the next few quarters. Another trigger to watch for will be an improvement in its bulk drugs business, which hasn’t been doing well owing to lower volumes and prices of penicillin-G.
Post-results, Alembic’s share price slipped by 4.9% to Rs48.80. The stock has doubled from its 52-week low of Rs21. A further improvement in valuations will be contingent on a continued improvement in its performance.
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