3QFY2012 Result Update | Pharmaceutical

February 10, 2012

Alembic Pharma
Performance Highlights
Y/E March (` cr) Net Sales Other Income Operating Profit Interest Net Profit
Source: Company, Angel Research

BUY
CMP Target Price
2QFY2012 396 60 7 38 % chg (qoq) (3.6) 820.0 11.9 (1.4) 16.3 Angel Estimates 388 54 7 32

`43 `82
12 Months

3QFY2012 381 1 68 7 44

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Pharmaceutical 807 0.6 51/34 23,957 2 17,749 5,382 ALEM.BO ALPM@IN

Alembic Pharma (Alembic) reported a strong performance for 3QFY2012. The companys growth was driven by the exports and domestic formulation business (which performed better than others), as restructuring of the business has now started showing results. Alembic reported robust sales growth and improvement in OPM during the quarter. At the CMP, the stock is trading at attractive valuations. Hence, we maintain our Buy view on the stock. Results above estimates: Alembic reported strong revenue growth of 15.5% yoy to `381cr, although the domestic formulation business grew by just 7.9%. However, the main growth driver was the exports segment, which grew by 50.4% yoy, driven by the API and formulations business. OPM for the quarter came in at 17.8% (15.3% in 2QFY2012). During the quarter, the company recorded net profit of `44cr, primarily driven by revenue growth and expansion in OPM. Outlook and valuation: Alembics growth and profitability profile has improved post the restructuring carried out by management. Over FY2011-13, we expect the company to post a CAGR of 15.4% and 34.8% in its sales and net profit, respectively. At the CMP, the stock is trading at attractive valuations. Hence, we maintain our Buy recommendation on the stock with a target price of `82. Key Financials (Consolidated)
Y/E March (` cr) Net Sales % chg Net Profit % chg EPS (`) EBITDA Margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 74.1 1.1 7.6 17.1

Abs. (%) Sensex Alembic Pharma

3m 2.2 (8.9)

1yr* 1.6 -

3yr* 84.0 -

* Since listed on Septeber 20, 2011

FY2011 1,184 85 4.5 12.2 9.7 25.7 16.2 2.8 1.0 8.0

FY2012E 1,370 15.7 128 49.8 6.8 15.5 6.5 38.9 25.1 2.3 0.9 5.6

FY2013E 1,576 15.0 155 21.4 8.2 15.9 5.3 38.8 26.6 1.9 0.8 4.7

Sarabjit Kour Nangra

+91 22 4040 3800 Ext: 343 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Alembic Pharma | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance

Y/E March (` cr) Net sales Other income Total income Gross profit Gross margin Operating profit Operating margin (%) Interest Depreciation PBT Provision for taxation PAT before Extra-ordinary item Extra-Ordinary Expenses PAT after Extra-ordinary item & MI EPS (`)
Source: Company, Angel Research

3QFY2012 381 1 382 192 50.3 68 17.8 7 8 54 9 44 44.2 2.3

2QFY2012 396 396 202 51.0 60 15.3 7 8 45 7 38 38.0 2.0

% chg (qoq) 9MFY2012 (3.6) 820.0 (4.9) 11.9 (1.4) (4.3) 18.9 33.0 16.3 16.3 1,121 2 1,122 566 50.5 179 15.9 21 25 135 24 111 111 5.9

Exhibit 2: 3QFY2012 Actual vs. Angel estimates

` cr Net Sales Other Income Operating Profit Interest Tax Net Profit
Source: Company, Angel Research

Actual 381 1 68 7 9 44

Estimates 388 0 54 7 7 32

Variation (%) (1.8) 820.0 24.6 (1.4) 33.0 38.6

Results above estimates: Alembic reported strong revenue growth of 15.5% yoy to `381cr, although the domestic formulation business grew by just 7.9%. However, the main growth driver was the exports segment, which grew by 50.4% yoy, driven mainly by the API and formulations business. Management expects FY2013 to be a strong year for the domestic formulations business, where the company expects to log 12-15% yoy growth, driven by the chronic segment. We expect growth momentum of the domestic formulation business to continue going ahead, as the restructuring exercise undertaken by management is now showing positive results. Exports, on the other hand, posted robust growth of 51.2%, driven by robust growth in API as well formulations, which grew by 113% and 10.9%, respectively. On the U.S. regulatory filing front, the company reported cumulative ANDA filings of 41 ANDAs in the U.S. with 17 approvals.

February 10, 2012

Alembic Pharma | 3QFY2012 Result Update

Net profit grows to `44cr: Alembic reported OPM of 17.8% in 3QFY2012, which was higher on a qoq basis mainly on the back of lower other expenditure. During the quarter, other expenditure as a percentage of sales stood at 19.8% (23.0% in 2QFY2012). Consequently, net profit came in at `44cr, higher than our estimate of `38cr.

Concall Highlights
Contribution of the chronic segment (around 35% to domestic formulation sales) grew by 20% yoy in 3QFY2012. For FY2013, domestic formulation growth is expected to be at 12-15%. For API exports, growth would be 10-15% yoy in FY2013. Management plans to file eight ANDAs in FY2012. Going forward, management targets to file 12-15 ANDAs and expect 10 ANDAs to get approval every year. For FY2013, management has guided for `110cr-120cr capex, of which `70cr would be towards the exports formulation plant, which would come on stream in 3QFY2013. Tax rate for FY2012 and FY2013 would be around 18% of PBT.

Investment arguments
Restructuring to drive growth: Alembic has been restructuring its business portfolio, which would aid in improving the companys growth and operating performance. The companys domestic formulation business contributed 57% to its total sales in FY2011, with 75% of its revenue coming from the anti-infective, respiratory, gynaecological and gastro therapeutic space. The company has a strong field force of ~2,700 MRs. On the export front, the formulation business contributed 14% to the total turnover, with majority of the contribution coming from Europe and the U.S. In the U.S., YTD the company has filed for 41 ANDAs and has received 15 approvals. The international API business contributes 28% to the total turnover. Going forward, the company expects its domestic formulation business to grow at industry pace. Further, revenue from the U.S. generic market is expected to scale up on the back of product approvals. Profitability and return ratios to improve: On the OPM front, we expect Alembics margin to improve from 12.2% in FY2011 to 15.0% by FY2013, given the improving productivity of the field force going ahead. The company plans to reduce debt (currently at `339cr) going ahead, as it does not foresee any major capital expenditure requirements except the normal capex. Hence, it would be utilizing its operating cash flows to repay debt. Overall, the company has RoE of over 35%.

February 10, 2012

Alembic Pharma | 3QFY2012 Result Update

Outlook and valuation: Alembics growth and profitability profile has improved post the restructuring carried out by management. Over FY2011-13, we expect the company to post a CAGR of 15.4% and 34.8% in its sales and net profit, respectively. At the CMP, the stock is trading at attractive valuations. Hence, we maintain our Buy rating on the stock with a target price of `82.

Exhibit 3: Key assumptions

FY2012E Sales growth (%) R&D as % of sales Operating margins (%) Capex (` cr) Net Debt/Equity (x)
Source: Company, Angel Research

FY2013E 15.0 4.0 15.9 71 0.8

15.7 4.0 15.5 71 0.9

Exhibit 4: Recommendation summary

Company Alembic Pharma. Aurobindo Pharma Aventis* Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca Labs Lupin Orchid Chemicals Ranbaxy* Sun Pharma Reco. Buy Buy Reduce Buy Neutral Buy Accumulate Neutral Buy Buy Buy Buy Neutral Neutral CMP (`) 43 111 2,197 695 349 1,620 61 2,033 407 326 459 171 443 541 Tgt Price (`) 82 166 1,937 866 1,920 68 583 393 593 270 Upside (%) PE (x) 90.6 49.5 (11.8) 24.6 18.5 11.5 43.2 22.8 29.1 58.8 5.2 8.1 24.5 15.6 18.9 16.9 5.2 23.4 7.3 10.0 15.5 4.6 8.7 20.9 FY2013E EV/Sales (x) 0.7 1.0 3.1 2.5 3.4 2.9 1.3 5.3 0.9 1.6 2.5 1.1 1.4 5.8 EV/EBITDA (x) 4.6 6.5 20.6 13.3 16.2 11.6 7.2 15.0 6.0 7.3 12.7 5.1 5.7 16.7 FY11-13E CAGR in EPS (%) 34.8 9.9 15.4 11.7 23.8 22.7 5.7 14.6 15.6 25.4 23.9 29.0 21.8 21.4 FY2013E RoCE (%) 26.6 10.2 15.7 17.2 16.6 21.8 7.9 41.0 14.2 25.9 24.8 12.0 27.7 22.4 RoE (%) 38.8 15.1 17.1 29.5 18.2 24.9 9.2 30.7 16.9 27.8 28.6 23.0 30.0 22.4

Source: Company, Angel Research; Note: *December year end

February 10, 2012

Alembic Pharma | 3QFY2012 Result Update

Profit & Loss Statement (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2011 1,192 8 1,184 1,184 1,040 590 66 141 242 144 (98.4) 12.2 30 115 (98.7) 9.7 26 18 17 107 (98.8) 107 21 20.1 85 85 85 7.2 4.5 4.5 FY2012E 1,388 18 1,370 1,370 15.7 1,158 651 76 151 280 212 47.1 15.5 42 170 48.5 12.4 32 18 12 156 46.0 156 28 18.0 128 128 128 49.8 9.3 6.8 6.8 49.8 FY2013E 1,596 20 1,576 1,576 15.0 1,325 748 88 173 315 251 18.4 15.9 47 204 19.6 12.9 32 18 10 189 21.4 189 34 18.0 155 155 155 21.4 9.9 8.2 8.2 21.4

February 10, 2012

Alembic Pharma | 3QFY2012 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders funds Total loans Deferred tax liability Total liabilities APPLICATION OF FUNDS Gross block Less: acc. depreciation Net block Capital work-in-progress Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Total assets 434 162 272 27 3.3 542 6 114 421 214 328 630 524 203 320 7 3 643 5 137 500 247 395 726 594 251 343 8 3 734 3 158 573 284 450 805 37.7 259 297 328 5 630 37.7 323 361 360 5 726 37.7 401 439 360 5 805 FY2011 FY2012E FY2013E

Cash Flow Statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2011 107 30 (49) 19 69 (63) (0) (63) (32) (50) 68 (7) (1) 7 6 FY2012E 156 42 (68) 28 102 (71) (0) (71) 32 (64) (32) (1) 6 5 FY2013E 189 47 (56) 34 146 (71) (71) (78) (78) (2) 5 3

February 10, 2012

Alembic Pharma | 3QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest)
1.1 2.2 4.4 1.0 1.7 5.3 0.8 1.4 6.3 2.1 71.1 72.2 67.4 105 2.9 70.8 71.9 69.7 95 2.8 70.0 71.2 69.0 97 16.2 16.7 25.7 25.1 26.0 38.9 26.6 27.0 38.8 9.7 79.9 1.7 13.0 5.5 1.1 21.4 12.4 82.0 2.0 20.8 7.7 1.0 34.3 12.9 82.0 2.1 21.9 7.4 0.9 35.0 4.5 4.5 6.1 1.5 15.7 6.8 6.8 9.0 1.9 19.1 8.2 8.2 10.8 2.3 23.3 9.5 7.0 2.7 3.5 1.0 7.8 1.8 6.3 4.8 2.2 4.4 0.9 5.5 1.6 5.2 4.0 1.8 5.4 0.7 4.6 1.5

FY2011

FY2012E

FY2013E

February 10, 2012

Alembic Pharma | 3QFY2012 Result Update

Research Team Tel: 022 - 4040 3800 DISCLAIMER

E-mail: research@angeltrade.com

Website: www.angeltrade.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Alembic Pharma No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 10, 2012