Alembic is banking on exports growth

Vadodara-based Alembic, which recently completed 100 years of operations, is among the top 20 pharma companies in the world. Its revenues crossed the Rs 1,000-crore mark in FY08.

Alembic is known as macrolide powerhouse of India with three top macrolide brands. Its other brands enjoying leadership in their respective segments include Zeet, Nimigesic, Sharkoferrol Glycodin and Protinules. Alembic’s acquisition of the non-oncology division of Dabur is aimed at developing more brands.

With an established and growing domestic formulation market, Alembic expects a 40-45% contribution from exports in two years. In this direction, the generics space has seen 21 drug master files (DMF) being filed. The acquisition of Nirayu’s manufacturing facilities adds to capacities for active pharmaceutical ingredients (API). Alembic has restarted manufacturing of penicillin at low costs and is eyeing the contract manufacturing market.

Business
The main revenue segments for Alembic are formulations, APIs, exports and R&D. Its product range covers all major therapeutic segments — from conventional to lifestyle products to low-cost generics.

Active pharmaceutical ingredients (API)
Alembic’s synthetic API manufacturing facilities see manufacturing of macrolides, non steroidal anti inflammatory drugs (NSAIDS), anti-depressants, anti-Parkinson’s and others. Looking at business expansion and consolidation in segment, Alembic acquired the manufacturing facilities of Nirayu for Rs 17.5 crore. The acquired facilities are likely to add Rs 15-20 crore to Alembic’s turnover. The company’s API domestic sales grow 55% at Rs 112.47 crore in FY08. Exports grew 134% at Rs 179.50 crore.

Formulations
Domestic formulations, which contribute 58% to revenues, registered a 22% growth in FY08. Alembic has an extensive range of finished dosage forms in therapeutic segments of antibiotics, anti-histamines, oral hypoglycemic, cardiovascular, NSAIDS, cough and cold preparations. 2008 saw the introduction of 29 new products in the market.

Alembic enjoys a 37.4% market share in macrolides. Its brands Althrocin, Azithral and
Roxid contributed Rs 72.44 crore, Rs 59.25 crore and Rs 61.20 crore, respectively. In cephalosporins, Ceftriaxone has a 8% market share and the new launched Cefipime has a 25% share.

Wikoryl contributed Rs 24.05 crore and grew 17%. Other brands contributing over Rs 10 crore are Zeet, Ulgel, Rekool and Sharkoferrol.

Alembic has a strong herbal and  neutraceuticals range with brands like Isovon, Protinules, ALA, Sharkoferrol, among others.

Alembic’s expertise lies in manufacture of high-volume finished dosages as well as effective control on their release profile. It had entered into a licensing agreement for its novel drug delivery system with UCB for its anti-epileptic Keppra XR (Livetiracetam Extended release Tablet). Alembic thereby receives milestone payments of $11 million over a period and would also receive royalty on sales of Keppra XR.

Generics
With more than 100 brands and their extensions, Alembic covers anti-cold, anti-malarial, antioxidants, antiseptic, anti-ulcerants, corticosteroids, vitamins and others.
Realising the importance of low-cost manufacturing as well as intellectual property rights, the company filed 21 DMF’s in the generics space.

Animal health products
Established in 1986, Alembic’s veterinary division is among the top ten in the Indian veterinary industry. Animal health products marked a CAGR of 16% in the last three years, beating the industry’s growth.

Investment rationale
Alembic is exploring both organic and inorganic opportunities for expansion. It is focusing on consolidating domestic markets and is eyeing regulated markets for strengthening its global operations.

Sales to regulated markets of US, Canada and Europe rose 279% to Rs 189.02 crore in FY08. As against a contribution of 10-15% less than two years back, Alembic’s exports are expected to contribute around 30% to turnover this year and 40-45% in the next two years, said Rajkumar Baheti, director and president-finance and the company secretary, Alembic.

Alembic has seen a rise in its R&D expenditure to Rs 43.39 crore in FY08. It aims to file 10-12 DMFs and 10-15 ANDAs every year. With 72 patents filed in FY08, the tally of patents applied for across the globe stands at 233.

The domestic formulations segment is poised for growth. Alembic’s macrolide brands Althrocin, Azithral and Roxid alone contributed Rs 192.89 crore to revenues and saw growth rates of 8%, 27% and 8%, respectively.

Brands such as Megaclav, Ethernex, Folinal, Ephedrex, Ovigyn and Ulgel also posted a growth between 20% and 91%. The formulations business grew 22% in FY08 and is expected to contribute to growth in FY09E.

For increasing its customer coverage, Alembic has launched two new divisions — Maxis and Summit. Maxis, with 300 employees, aims to cater to rural markets and establish generic brands. Summit is a lifestyle therapeutic division, aiming at lifestyle segments like cardiovascular, diabetics etc and acquired Dabur products.

Concerns
Alembic is looking to consolidate its domestic market and is targeting growth from regulated markets. With its increased global operations and income from exports, any fluctuation in the exchange rate will impact bottomline.

Valuations
Alembic saw its topline grow 62.6% to Rs 1,003.25 crore in FY08. Net profit grew 58%. Domestic formulation sales grew 22% to Rs 597.74 crore. Export formulations’ sales grew 89% and API exports grew 134%. Going forward, Alembic looks at a 25% growth in topline and profits in FY09E, while maintaining margins.

With growth imminent in both domestic as well as export markets, Alembic is a good bet with upside potential. The stock is available at Rs 44 and trades at 5.43 times FY08 earnings, which are attractive valuations.

The author does not hold any shares in the company