Alembic Pharma raises Rs 750 crores via QIP issue
Mumbai: Alembic Pharmaceuticals, a Vadodara headquartered company, is a leading manufacturer of pharmaceuticals with three business verticals -International generics (approximately 58 percent), Domestic branded formulations (approximately 31 percent) and APIs (approximately 11 percent).
They have three R&D centers, two formulations, three API facilities, and are coming up with three new plants i.e. oncology oral solids & injectable, general injectable & ophthalmic, and an oral solid plant.
Alembic has continuously outperformed its listed peers on the back of its US business, which has grown 5x in the last five years. Alembic's impeccable compliance track record with the USFDA with no history of any Import Alerts or Warning letters for any of its plants and its delivery track record with the distributors makes it a dependable partner in the US business.
Significant investments in new Capex initiatives (Rs approximately 1500 crs) and in R&D (14 percent of revenue in FY20) is expected to start yielding dividends from FY22. These investments along with a sustained filing momentum of +25 ANDA per annum remain key levers for the US business growth.
With the impact of the withdrawal of stockist promotions and portfolio rationalization now behind, Alembic's domestic business is best positioned to grow faster than the market has given the low FY20 base and the significant scope for improvement in MR productivity.
Alembic's International generics business (ex-US) grew by 62 percent in Q1FY21 on a YoY basis. Its API business grew on the back of increased capacities from 30mt/month to 100mt/month and has already sought regulatory approvals to increase it further to 250mt/month.
Rhizen Pharma, Alembic's associate, is expected to start contributing significantly with its first out-licensed product Umbralisib due for commercial launch in H2FY21.
Given the momentum in the entire business segment supported by the tailwind of a better generic pricing outlook, Alembic is well poised to sustain its superior margin performance. With most of the investment blocks for driving sustainable growth in the US in place, the medium-term growth outlook remains robust.
Capex moderation to aid healthy FCF generation starting FY22 and thus Return ratios are likely to improve from here on. From a valuation perspective, Alembic remains one of the cheapest bet amongst its peers trading at a PE ratio of 18.7x on FY21 estimates.
With healthy EBITDA margins of 31 percent in Q1FY21 and superior ROEs of 26.8 percent, Alembic remains a worthy re-rating candidate.
Alembic recently concluded its QIP fundraise of Rs 750 crores which saw an overwhelming response, Monarch Networth Capital Limited and HDFC Bank acted as the banker to the issue. The issue got subscribed nearly 2x on the back of strong demand.
Tata MF, HDFC Life, Sundaram MF, Bajaj Life, and Nippon India MF were the main investors to the issue. The proceeds of the issue will be utilized for pairing down their debt obligations and also to fund its future growth initiatives in areas such as long lead niche injectable & oncology projects.
"This QIP will help the company becoming net debt-free by FY22 and will start generating meaningful free cash flows next year onwards. This will create meaningful value for the shareholders," said Vaibhav Shah - Managing Director, Monarch Networth Capital on the deal.
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