Anand Rathi - Alembic

Anand Rathi Research report on Alembic:

Company is fully integrated player in Antiinfective segment which is largest segment for this company accounting for over 60% of sales. In this segment company's sales is growing at higher pace compared to industry rate. Apart from this company is also in to - Cough [OTC], Nutraceuticals, Pain management, CV, Diabetese and Gestro-intestinal segments. Company manufactures - bulk drugs, formulations with 4- Brands falling under top selling 300 pharma brands. Company has OTC brands like - Glycodin & Zero, in cough and sugar free sweetner segments.

Company has large fermentation facility to manufacture basic antibiotic - Penicillin. But mostly this is used for captive consumption only. Company is in to Contract manufacturing and has filed around 10 DMFs also and planning to file 6-8 DMFs every year going forward. Company also have a 36 Bed, Clinical Research facility, for Bio-Equivalence trials. So company is capable of offering - Pre-Clinical / Clinical Research and CRAMS to global players.After setting up unit in tax heaven - HP, the company's margins improved significantly for domestic business. Company's Panelav unit in Gujarat, is making both - bulk drugs and formulations. The bulk drug facility is US FDA approved, but formulation unit is approved by - MCC, MHRA; while FDA inspection is due in Current quarter and final approval is expected in last quarter. Right now the major sales is from domestic formulations [69%], but going forward with more approvals from regulated markets, the share of Formulation exports to regulated markets will grow, leading to improved margins.

Company has very recently in April'07, acquired Formulation unit of Dabur Pharma at a cost of Rs 1.59 billion. This will further boost the revenue and profits in the current and coming quarters. With this acquisition, company will be able to increase market share in CV, diabetes and Gynecology segments.

Last quarter of '07 was affected by final settlement with ONGC dues also. But going forward with growth from new acquisitions, new launches and supplies to new regulated markets; will boost the revenue and profits significantly. We expect the company to report EPS of Rs 8.30 and 9.39 for 08 & 09 respectively. So at current price of Rs 73, stock discounts '09 earnings by less then 8 times, which looks quite attractive. Buy for medium term gains.