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Thursday, December 03, 2015 Click here for Rating Reckoner
Alkem Laboratories
Focused on branded formulations
CM RATING48/100
Established in 1973 by Samprada Singh and Basudeo Singh, Alkem Laboratories is the fifth largest pharmaceutical company in India by domestic sales. The developer, manufacturer and seller of pharmaceutical and neutraceutical products including branded generics, generic drugs, active pharmaceutical ingredients (APIs) and nutraceuticals has 14 manufacturing locations in India and two in the US. 5 of these plants are approved by the US Food and Drug Administration. Domestic sales comprised 75% of the revenues, with exports constituting the remaining end March 2015. Exports are predominantly to the US, through marketing subsidiary Ascend laboratories.

Market share was 3.6% in the domestic pharmaceutical industry's revenues and overall prescriptions share in India 7.6% end March 2015.

The most significant therapeutic areas in the domestic market, accounting for around 81% of total domestic sales, were anti-infectives, gastro-intestinal, pain, analgesics, vitamins, minerals and nutrients. There is leadership position in the anti-infective segment, the largest therapeutic area in the pharmaceutical industry. The share by sales was 11.7% in the anti-infective segment, 5.6% in gastro-intestinal, 5.1% in pain and 2.8% in vitamins and minerals. Some of the key brands are Clavam, Taxim, Taxim-O, Pan, Pan-D, Ondem, Xone, Sumo and AtoZ NS. Five brands earn more than Rs 100 crore in domestic sales.

Almost 100% of the sales are from prescriptions, backed by pan India sales and distribution network. There are eight Central warehouses, 40 sales depots, 7,025 stock keepers and 5,745 medical representatives across all states including rural areas in India. Products are sold in 56 countries, either directly through subsidiaries or indirectly through supply, distribution and other arrangements with various global companies and local distributors.

As much as 4.5%-5% of the revenue are spent on R&D. There are complete in-house capabilities (two R&D facilities in India and two in the US), enabling development of a wide range of dosage forms and APIs.

The Offer and the Objects

The issue comprises offer for sale (OFS) of 1.28 crore equity shares of Rs 2 each. At the lower price band of Rs 1020 per share, the issue size is Rs 1305.60 crore. At the higher price band of Rs 1050 per share, the issue works out to Rs 1344 crore. The selling shareholders comprise promoters and promoter group, offering about 1.28 crore shares.

The minimum bid lot is 14 equity shares and in multiples of 14 thereafter. The issue is through book building and will open on 8 December and close on 10 December.

The aim is to achieve the benefits of listing the equity shares on the BSE and the NSE through OFS.

Strengths

The largest number of brands (five) in the top 50 brands in the Indian pharmaceutical industry in the period ended September 2015. Is the third fastest-growing among the top 10 pharmaceutical companies in India. Also, a market leader in various therapeutic areas, with ability to build market leading brands in the domestic market.

Fast growing and established international operations. Position in the US augmented through marquee acquisitions (Norac and Long Pharma) and well positioned to grow in this market through the marketing platform Ascend. There are plans to expand the portfolio of in-licensing products and to sell the US product portfolio in other developed markets. US revenues grew at a CAGR of 46% from the fiscal ended March 2013 (FY 2013) to FY 2015 period. Change in product mix towards high value-added products in the US market one of the reasons for higher margins in H1 of FY 2016.

Robust pipeline of approvals and filings Of the total 69 abbreviated new drug applications filed with the US FDA, 21 have been approved, three tentatively approved and 45 pending. Permission has been sought with the regulators of Chile, Kazakhstan, Australia, the EU and the Philippines to launch products in these markets.

Cash and cash equivalent were Rs 1588 crore end September 2015. There is nil net debt. The aim is to use cash for acquisitions of brands, companies and assets and to enter new markets and expand the product base and to grow faster.

Profit from manufacturing locations in India is exempt from tax under Section 80-IC of the Income Tax Act, 1961. Pays tax only on the US operations.

Weaknesses

Over the last three years, OPM has come down continuously and net profit has been sluggish.

Sales from the US market, contributing around 18.8% of the total sales end March 2015, are largely dependent on five customers and five products. While there are plans to grow extensively in the US, such high dependency on a few clients increases risks.

Invested Rs 222.14 crore in real estate fund Avenue Venture Real Estate.

There is no second generation within the promoter and the group to lead the business going forward.  

Valuation

Net consolidated revenues grew 21% to Rs 3788.71 crore and consolidated profit after tax (Pat) rose 6% to Rs 462.56 crore in FY 2015. Net sales increased 36% to Rs 2570.13 crore and consolidated Pat is up152% to Rs 431.29 crore in the half year ended September 2015. The performance of H1 of FY 2016 includes financials of Indchemie and Cachet, which were acquired in March 2015.

The consolidated EPS for FY 2015 on equity share capital of Rs 23.91crore of face value of Rs 2 stood at Rs 38.7. Given the seasonality of business, H1 of FY 2016 EPS is not annualised. At the higher price band of Rs 1050, the issue is offered at 27.1 times FY 2015 EPS.  

Alkem Laboratories: Issue highlights
For Offer for Sale Offer size (in Rs crore)
- On lower price band1305.60
- On upper price band1344.00
Offer size (in no. of shares )1.28 crore
Price band (Rs)*1020-1050
Pre & Post issue capital (Rs crore)23.91
Pre-issue promoter and promoter group shareholding (%)70.87
Post-issue promoter and promoter group shareholding (%)66.23
Issue open date8/12/2015
Issue closed date10/12/2015
ListingBSE,NSE
Rating 48/100

 

Alkem Laboratories: Consolidated Financials
1103(12)1203(12)1303(12)1403(12)1503(12)1409(06)1509(06)
Total Sales1690.792015.642495.233126.003788.711889.022570.13
OPM (%)16.9%18.6%14.5%13.1%12.9%9.7%17.9%
OP286.58375.21362.45410.05487.12183.82460.41
Other in. 113.42145.28167.17165.27181.0391.5588.88
PBDIT400.00520.49529.62575.32668.15275.37549.29
Interest41.2358.1088.2393.0881.1143.5839.34
PBDT358.77462.39441.39482.24587.04231.79509.95
Dep.27.4329.0339.7952.2670.3030.9750.14
PBT 331.34433.36401.60429.98516.74200.82459.81
EO0.000.000.000.000.000.000.00
PBT after EO331.34433.36401.60429.98516.74200.82459.81
Tax (including Deferred Tax)35.5727.5217.97-5.3654.1829.6521.26
PAT295.77405.84383.63435.34462.56171.17438.55
MI0.19-0.70-0.190.000.000.007.26
PAT after MI295.58406.54383.82435.34462.56171.17431.29
EPS*24.734.032.136.438.7##
*EPS is on post issue equity capital of Rs 23.91 crore of face value of Rs 2 each
# EPS not annualised due to seasonality of business
Figures in crore
Source: Capitaline Database

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