Improving business profile; re- rating candidate: The business mix at Alembic Pharma is likely to improve further, with higher contribution from US generics and specialty therapies in India, while low-margin APIs and acute therapies may continue to face slowdown. We expected transition to result in 280bp EBITDA margin expansion and 35% earnings CAGR over FY14E-16E. With majority of the capex behind them and high free cash generation visibility, we expect ALPM to be net-debt free by FY16E. Return ratios are expected to remain above 40%. Our EPS estimates for FY15E/16E are 10%/14% above Bloomberg consensus estimate. With improving business profile and strong earnings growth, we believe Alembic Pharma is a potential re-rating candidate. Initiate coverage with a Buy and target price of INR350 (15x FY16E EPS).
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