Alembic’s shares have risen 67% from their lows in March and are now close to all-time highs
Lack of exclusive products in US, higher overheads will result in flat to marginal earnings growth in the next two years
Alembic Pharmaceuticals Ltd is benefiting from the boost pharma firms have been getting during the covid-19 lockdown. On a year-on-year basis, its revenue and profitability have been running slightly ahead of expectations.
The company has been a beneficiary of covid-19 pre-stocking due to the six-week lockdown in the domestic market. Revenue from acute therapy drugs grew 24% year-on-year which benefited from the extended flu season, while revenue from its specialty products was up 10%. This has shored up its Q4 FY20 domestic formulations business about 13.2% year-on-year, higher than its past growth figures.
Alembic’s shares have risen 67% from their lows in March and are now close to all-time highs.
Nevertheless, its sales growth is not much of a surprise, since sales in India have been better for most domestic pharma firms. But as footfalls at clinics and doctors have fallen silent thanks to covid-19, Alembic may find it difficult to maintain a similar pace of growth in its domestic business. The Indian pharma market may even grow in the mid-single-digit, according to analysts.
Alembic’s US business has been boosted by some limited-time drug opportunities and an increase in its pace of drug launches.
The company’s plans of 24 filings in the US in the next 12 months are on the right track. However, most of these are not exclusive launches, thus restricting profitability. Besides, the slowdown in the US due to covid-19 may have already dented its growth rates there, and may continue in the coming months. Further, competition in many of its product categories in the US has intensified.
Alembic’s Q4 performance has not improved operating metrics very much, with margins being flat compared to Q3. The increase in research and development costs has taken the usual toll on margins, and may prove to be the trend now. Costs are likely to increase on the expansion of its manufacturing facilities.
Analysts maintain that due to the lack of its exclusive products in the US and higher overheads, Alembic’s earnings growth could be flat to marginal in the next two years.
The recent rally has also taken valuations to their historical averages of about 17 times FY20 trailing earnings.
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