Alembic Pharma US launches drive earnings beat and strengthen medium-term growth

Investment View and Valuation

Motilal Oswal Financial Services reiterates a Neutral recommendation on Alembic Pharma following a better-than-expected 1QFY27 performance. The broker's target price of Rs 845 offers only 4 per cent upside from the current market price of Rs 809, despite an improving medium-term earnings outlook.

Motilal Oswal broadly retains its FY27E and FY28E estimates and values Alembic Pharma at 17 times 12-month forward earnings.

1QFY27 Financial Performance

Consolidated sales grew 25.7 per cent year-on-year to Rs 21.5 billion, beating Motilal Oswal's estimate of Rs 19.1 billion by 12 per cent. EBITDA rose 18 per cent year-on-year to Rs 3.3 billion, 19 per cent above estimate, while adjusted PAT increased 12 per cent to Rs 1.7 billion, 13 per cent ahead of estimate.

Gross margin contracted 500 basis points year-on-year to 71.2 per cent. However, EBITDA margin declined by only 100 basis points to 15.4 per cent because of operating leverage. Employee expenses and other expenses as a share of sales fell by 265 basis points and 150 basis points, respectively. R&D expenditure stood at Rs 1.9 billion, or 8.7 per cent of sales.

US Generics Drive the Earnings Beat

US generics sales increased 49 per cent year-on-year to Rs 7.8 billion, accounting for 36 per cent of total sales. US revenue rose to USD 83 million in 1QFY27, compared with an average quarterly run rate of USD 55 million to USD 60 million over the preceding four years. Growth was supported by launches of products facing limited competition.

Management indicated that US revenue grew approximately 37 per cent to 38 per cent year-on-year at constant currency. Excluding generic Bosutinib, growth was approximately 20 per cent to 25 per cent. Bosutinib contributed one month of sales during the quarter and has 180-day exclusivity for the 100mg and 500mg strengths until November 2026.

Volume expansion, new launches and improved manufacturing utilisation also supported US growth. Ex-US generic exports grew 17 per cent year-on-year to Rs 3.8 billion, while API sales increased 33 per cent to Rs 3.5 billion.

India Business and Management Outlook

Domestic formulations grew 7 per cent year-on-year to Rs 6.4 billion, with a gradual improvement in specialty products. The animal-health business continued to deliver robust growth.

Management expects India human-health growth to improve over the next one to two quarters following the leadership change. It expects the India business to grow broadly in line with the Indian pharmaceutical market in FY27.

• FY27 US revenue-growth guidance was raised to the mid-to-high teens.
• Overall company revenue is expected to grow at a mid-teens rate in FY27.
• API revenue is expected to grow 10 per cent year-on-year in FY27.
• The US branded-specialty business received encouraging initial physician feedback following the soft launch of Pivya and is expected to break even by the end of FY27.

Earnings Forecasts

Motilal Oswal expects launches and the scaling up of existing products in the US and India to drive a 25 per cent earnings CAGR between FY26 and FY28. The broker forecasts EBITDA margin expansion of 200 basis points over the same period, with R&D spending remaining at around 7 per cent to 8 per cent of sales.

Margin and Balance-Sheet Considerations

Factors that could offset the earnings improvement include management's guidance for approximately 150 basis points of EBITDA-margin dilution in FY27, along with higher depreciation and tax rates. The increase in 1QFY27 depreciation was largely due to amortisation of US branded-business intangible assets, which accounted for approximately 70 per cent to 75 per cent of the increase.

Gross debt was approximately Rs 16 billion, as strong sales increased receivables. Management expects working-capital normalisation and debt reduction over the subsequent quarters.