Expect growth to be sustainable for specialty business – Alembic Pharmaceuticals

Update on the Indian Equity Market:

On Thursday, NIFTY closed in red at 14,590 (-0.4%). Top gainers in NIFTY50 were Tata motors (+6.4%), Bajaj Finance (+2.7%), and Reliance (+2.6%). The top losers were ONGC (-3.3%), Tata Steel (-2.9%), and Coal India (-2.6%). The top sectoral losers were PSU BANK (-3.3%), REALTY (-2.6%), and METAL (-2.2%) and there were no sectoral gainers.

Excerpts of an interview with Mr. Shaunak Amin, MD – Alembic Pharma (APLLTD) with CNBC TV18 dated 20th^h January 2021:

• In the trailing quarters, they had almost 10 quarters of fantastic growth in the US business, so the base had been built up quite high. This quarter was a bit of a competitive intensity which led to a slowdown.
• US sales have slowed down in this quarter.
• On the Indian side of the business, they haven’t launched any of the COVID-specific products. Whatever growth they did see in Q3 was on the back of a better performance largely by speciality business.
• The acute portfolio for them was very sluggish not just for them but for the whole market.
• The company expects growth to be sustainable for speciality businesses.
• It is the speciality business they expected to be sustainable going forward, acute side of the business the market for that still hasn’t recovered back to normal levels in terms of growth.
• As long as the market continues to underperform on the acute side of things, it is hard to show large growth numbers.
• They haven’t pursued any specific cost-cutting activities with respect to COVID. In terms of their operational expenses, they try to maintain their OPEX at the same level pre-COVID, during COVID at the current level now.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of APLLTD was ₹ 942/- as of 21-January-2021.  It traded at 16x /18x/17x the consensus earnings estimate of ₹ 59.3/ 51.2/ 56.2 for FY21E/FY22E/23E respectively.
• The Consensus price target of APLLTD of ₹ 1,121/- implies a PE multiple of 20x on FY23E EPS estimate of ₹56.2/-.

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