ICICI Securities

Alembic Pharmaceuticals (Add)

CMP: ₹540.15

Target: ₹610

Alembic Pharmaceuticals has set up four new facilities for general oral solids (OSD), oncology oral and injectables, general injectables and dermatology (Aleor JV).

We visited Alembic Pharma’s (Alembic) four manufacturing facilities around Vadodara, Gujarat. These are the new facilities in which the company has made significant investments (about ₹1,500 crore) over past 2-3 years and these would become commercial in FY21. In addition, the company has also been spending over ₹400 crore annually on R&D to build strong product pipeline. We believe the profitability would be impacted over next two years as these facilities go commercial and operating expenses start getting expensed.

We expect over ₹200 crore incremental expense to P&L in FY21 and hence, we cut earnings estimates by 3-10 per cent for FY20-21. The management expects pick up in US sales from FY22 onwards which would take care of this incremental spend. We maintain ‘add’ on the stock with revised target price of ₹610/share (earlier ₹656).