Alembic Pharma Q2 Results Review - Strong Execution Drives Earnings Beat: Motilal Oswal

Motilal Oswal Report

Alembic Pharmaceuticals Ltd. delivered better-than-expected earnings for Q2 YF23, fueled by healthy growth across domestic formulation, exports as well as active pharma ingredient segments.

Part of the earnings was boosted by certain one-time opportunities in the U.S. generics segment.

We raise our earnings per share estimate for FY23 by 5% to factor in:

1. superior traction in the U.S. generics segment,

2. better-than-industry growth in the DF segment and

3. robust order-book in the API segment.

While product approvals would enable long awaited scale-up of operations at injectable sites (F2/F3) and subsequently drive 53% YoY earnings growth for FY24E, the return on equity still remains muted at 11%.

Further, the U.S. generics business trades at a much lower multiple (at 12-15 times earnings) versus branded generics (at 22-25 times earnings) and due to Alembic Pharma’s increased share of business expected from the U.S. generics, the overall valuation multiple is likely to remain capped despite strong earnings growth.

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