Remember Glycodin cough syrup? It is one of Alembic Pharma's most successful brands. Founded in 1907, Alembic is one of the country's oldest pharma company that has its roots manufacturing tincture (alcoholic extract of plant or herb). Today, it is the 25th largest pharma company in India. Here are Alembic's growth drivers:
Expanding focus paying off. Alembic has had a successful run with antibiotics, cough syrup and other acute therapies. This is among the most competitive segments for any pharma company. It is also slow moving. Not surprisingly, with Alembic limited to this segment, it was left behind as peers made a killing in other high-demand therapies. The new generation of management at Alembic has changed course and has expanded into seven specialty segments that include respiratory, CVS, ophthalmic, gastro, gynaecology and diabetology. Specialty therapy now accounts for 67 per cent of Alembics revenues.
Expansion into the US. The US is too big a market for any pharma company to ignore. Many domestic pharma companies joined the big league mainly by doing business in the US. Alembic was not one of them. The new management wants to change that. Alembic started its US operations in partnerships with other firms. It now wants to gradually go in alone. In a bid to scale up US presence, Alembic plans to launch 6-7 new products every year in limited competition segments. Contribution from US is still low at 18 per cent but Alembic's strategy should result in greater US contribution.
Margin jump. Alembic's shift from acute to specialty and increase in exports has improved its profitability. Ebitda margin jumped from 14 per cent three years back to 20 per cent (Q2FY15). A better product mix and higher exports should help push margins up in future.
Risks. The risk of a slower-than-expected penetration in the US is real. In addition, the USFDA has been increasingly turning on the heat on Indian pharma companies, derailing plans of many domestic pharma companies.
Outlook and Valuation. Alembic has been catching up with its peers. Its foray into specialty segments is already showing results. The margin expansion gives it greater ammunition to invest in the US where the strategy of new launches looks promising. At the current price, Alembic trades at 0.8 times its three-year PEG ratio. Buy.