4QFY2012 Result Update | Pharmaceutical

April 25, 2012

Alembic Pharma
Performance Highlights
Y/E March (` cr) Net sales Other income Operating profit Interest Net profit
Source: Company, Angel Research

BUY
CMP Target Price
% chg (qoq) (11.4) 116.3 (42.0) (22.9) (54.0) 4QFY2011 294 0.9 26.4 6.4 10.3 % chg (yoy) 14.9 126.1 49.1 (15.4) 97.9

`55 `91
12 Months

4QFY2012 338 2 39 5 20.3

3QFY2012 381 1 68 7 44.2

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Pharmaceutical 1,039 0.6 60/34 43,713 2 17,151 5,202 ALEM.BO ALPM@IN

For 4QFY2012, Alembic Pharmas (Alembic) performance on the top-line front came in-line with our expectations. However, the companys performance on the bottom-line front was below our expectations, on account of lower-than-expected OPM. However, we maintain our Buy view on the stock. Top line as per expectations, but net profit comes below expectations: For 4QFY2012, Alembic reported revenue growth of 14.9% yoy to `338cr, with domestic formulation business growing by just 17% yoy. However, the exports segment grew by only 12.5% yoy, because of the decline in the international generics segment a major contributor to the exports segment. OPM for the quarter grew to 11.6% from 9.0% in 4QFY2011, though it came in lower than our expectations. During the quarter, the companys net profit increased by 97.9% yoy to `20.3cr, below our expectations. Net profit growth was primarily driven by revenue growth and OPM expansion during the quarter. Outlook and valuation: Alembics growth and profitability profile has improved post the restructuring carried out by management. Over FY2012-14, we expect the company to post a CAGR of 13.9% and 14.6% in its sales and net profit, respectively. At the CMP, the stock is trading at attractive valuations. Hence, we maintain our Buy view on the stock with a target price of `91. Key Financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EPS (`) EBITDA margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 74.1 2.4 7.5 16.0

Abs. (%) Sensex Alembic Pharma

3m 0.4 44.4

1yr (12.4) -

3yr 51.4 -

Since listed on September 20, 2011

FY2011 1,177 85 4.5 12.1 12.5 26.3 17.9 3.6 1.2 9.7

FY2012 1,444 22.6 130 52.3 6.9 14.1 8.2 37.6 25.0 2.7 0.8 5.5

FY2013E 1,624 12.5 125 (4.2) 6.6 14.2 8.5 27.5 26.2 2.1 0.9 6.2

FY2014E 1,855 14.2 171 37.2 9.1 15.6 6.2 29.2 29.4 1.6 0.7 4.7

Sarabjit Kour Nangra

+91- 22- 36357600 6806
sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Alembic Pharma | 4QFY2012 Result Update

Exhibit 1: 4QFY2012 performance

Y/E March (` cr) Net sales Other income Total income Gross profit Gross margin Operating profit Operating margin (%) Interest Depreciation PBT Provision for taxation PAT before Extra-ordinary item Extra-Ordinary Expenses PAT after Extra-ordinary item & MI EPS (`)
Source: Company, Angel Research

4QFY2012 3QFY2012 % chg(qoq) 4QFY2011 % chg (yoy) 338 2 340 185 54.7 39 11.6 5 9 27 7 20 0 20.3 1.1 381 1 382 192 50.3 68 17.8 7 8 54 9 44 0 44.2 2.3 (54.0) (22.9) 10.3 (49.6) (28.8) (54.0) (42.0) (3.8) (11.4) 116.3 294 1 295 144 49.0 26 9.0 6 8 13 3 10 0 10.3 0.5 97.9 (15.4) 13.8 107.0 141.1 97.9 49.1 14.9 126.1 15.2 28.3

FY2012 1,457 5 1,462 749 51.4 216 14.8 26 34 161 31 130 0 130 6.9

FY2011 % chg (yoy) 1,199 3 1,202 609 50.8 157 13.1 24 30 107 21 85 0 85 4.5 52.7 9.7 13.7 50.9 43.8 52.7 37.6 23.1 21.5 54.1

Exhibit 2: 4QFY2012 Actual vs. Angel estimates

(` cr) Net sales Other income Operating profit Interest Tax Net profit
Source: Company, Angel Research

Actual 338 2 39 5 7 20

Estimates 344 2 48 9 7 27

Variation (%) (1.8) 9.3 (18.4) (41.5) (0.1) (23.4)

Top-line performance in-line with our expectations: For 4QFY2012, Alembic reported revenue growth of 14.9% yoy to `338cr, in-line with our expectations. Revenue growth came on the back of robust growth on the domestic front, which grew by 17% yoy. During the quarter, exports, however, grew only by 12.5% yoy. Growth in exports was dragged by sales of international generics (a major contributor to the exports segment), which declined by 9% during the period. Branded exports and API exports grew by 29% yoy and 99% yoy, respectively, during the quarter. For FY2012, Alembic posted net sales of `1,457cr, registering 21.5% yoy growth, mainly driven by exports, which grew at a healthy pace of 41% yoy, while domestic sales grew by 11% yoy. Exports growth was driven by international generics and API exports, which grew by 39% yoy and 55% yoy, respectively, in FY2012. Management expects FY2013 to be a strong year for the domestic formulations business, where the company expects to log 12-15% yoy growth, driven by the chronic segment. We expect growth momentum of the domestic formulation business to continue going ahead, as the restructuring exercise undertaken by management is now showing positive results.

April 25, 2012

Alembic Pharma | 4QFY2012 Result Update

On the U.S. regulatory filing front, the company reported cumulative ANDA filings of 45 ANDAs in the U.S. with 19 approvals. Cumulative DMF filings as of FY2012 stood at 62. Lower-than-expected bottom-line performance: A better product mix during the quarter resulted in 5.7% yoy expansion in the companys gross profit margin, which grew to ~54.7% in 4QFY2012. However, a substantial rise in other expenditure (up 32% yoy) and R&D expenses (40.7% yoy), led to OPM expanding by only 2.7% to 11.6% in 4QFY2012. Improvement in OPM along with reduction in interest expenses led to 97.9% yoy growth in the companys net profit, which stood at `20.3cr in 4QFY2012. The companys net profit was, however, below our estimate of `27cr on the back of lower-than-expected OPM.

Concall highlights
For FY2013, domestic formulation growth is expected to be at 12-15%. For API exports, growth would be 10-15% yoy in FY2013. International generics are expected to remain muted in the next 2-3 quarters. Overall, management expects exports revenue growth to be ~15% in FY2013. Management filed seven ANDAs in FY2012. Going forward, management targets to file 12-18 ANDAs in FY2013. R&D expenses are expected to be ~4% of sales in FY2013. Gross margin in FY2012 has improved on the back of better product mix, which should sustain going forward. OPM is expected to come in at ~15% for the next two years. Tax rate for FY2013 is expected to be around 20% of PBT. For FY2013, management has guided for `100cr capex, of which `70cr would be towards the exports formulation plant, which would come on stream in 4QFY2013.

Investment arguments
Focus on the chronic segment to drive domestic formulation growth: Alembic has been restructuring its business portfolio, which would aid in improving the companys growth and operating performance. The companys domestic formulation business contributed 54% to its total sales in FY2012, with ~70% of its revenue coming from the anti-infective, respiratory, gynaecological and gastro therapeutic space. The company has a strong field force of ~3,300 MRs. Going forward, the company expects its domestic formulation business to at least grow in line with the industry, before the share of the high-growth chronic segment improves from the current levels of ~30%. For FY2012-14, we expect the domestic formulation business to post a 14.0% CAGR.

April 25, 2012

Alembic Pharma | 4QFY2012 Result Update

Exports U.S., the key growth driver: On the exports front, the companys formulation business contributed 20% to the total turnover, with majority of the contribution coming from Europe and the U.S. In the U.S., YTD the company has filed for 45 ANDAs and has received 19 approvals. Going forward, the company is expecting to keep its momentum high in terms of number of filings, by filing 12-18 ANDA filings per annum. While FY2013 would see modest growth in exports, as compared to its historical high growth on account of capacity constraints, we believe high growth in the exports segment should resume in FY2014. For FY2012-14, we expect exports to register a CAGR of 21.1%. Outlook and valuation: Alembics growth and profitability profile has improved post the restructuring carried out by management. Over FY2012-14, we expect the company to post a CAGR of 13.9% and 14.6% in its sales and net profit, respectively. At the CMP, the stock is trading at attractive valuations. Hence, we maintain our Buy rating on the stock with a target price of `91.

Exhibit 3: Key assumptions

FY2013E Sales growth (%) R&D as a % of sales Operating margins (%) Capex (` cr) Net Debt/Equity (x)
Source: Company, Angel Research

FY2014E 14.2 4.1 15.6 53 0.4

12.5 4.1 14.2 112 0.7

Exhibit 4: Recommendation summary

Company Reco. CMP Tgt Price Upside (`) Alembic Pharmaceuticals Buy Aurobindo Pharma Aventis* Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca labs Lupin Orchid Chemicals Ranbaxy* Sun Pharma Buy Sell Buy Buy Neutral Buy Neutral Buy Buy Buy Buy Neutral Accumulate 55 127 2,282 728 312 1,779 47 2,185 470 345 552 182 515 592 (`) 91 175 1,937 1,016 372 92 665 443 656 270 635 (%) PE (x) 65.2 37.4 (15.1) 39.6 19.2 97.8 41.5 28.5 18.8 48.7 7.2 6.2 7.3 23.9 13.6 15.1 19.8 3.6 22.7 7.1 8.5 16.8 4.8 14.0 22.2 FY2014E EV/Sales (x) 0.7 0.6 2.7 1.9 2.7 3.1 0.8 5.0 0.9 1.3 2.5 1.0 1.5 6.1 EV/EBITDA (x) 4.7 4.0 17.9 9.8 12.4 12.0 4.2 14.1 6.1 6.2 12.3 4.9 8.7 16.9 FY12-14E 15.4 4.7 5.6 25.5 18.3 (4.5) 38.9 37.9 25.1 23.5 21.2 50.0 12.0 8.3 FY2014E RoE (%) 29.5 14.0 15.4 28.0 18.1 19.5 10.1 32.9 16.9 27.7 25.7 18.0 17.6 20.8 29.4 10.1 14.7 25.9 16.7 19.5 8.9 45.0 14.2 25.9 25.8 10.7 16.3 24.0 CAGR in EPS (%) RoCE (%)

Source: Company, Angel Research; Note: *December year end

April 25, 2012

Alembic Pharma | 4QFY2012 Result Update

Profit & Loss Statement (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net sales Other operating income Total operating income % chg Total expenditure Net raw materials Other mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& amortisation Interest & other charges Other income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of associate Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg 0 107 21 20.1 85 85 85 7.2 4.5 4.5 12.1 30 24 3 2 107 FY2011 1,192 14 1,177 15.6 1,193 1,035 590 59 141 244 142 FY2012E 1,455 11 1,444 17.4 1,461 22.5 1,241 708 63 168 301 203 42.7 14.1 34 26 0 0 161 50.5 161 31 19.2 130 130 130 52.3 9.0 6.9 6.9 52.3 FY2013E 1,634 10 1,624 16.3 1,640 12.2 1,394 771 189 433 230 13.4 14.2 37 31 0 0 163 1.2 163 38 23.3 125 125 125 (4.2) 7.7 6.6 6.6 (4.2) FY2014E 1,866 11 1,855 18.9 1,874 14.2 1,566 881 216 468 289 25.7 15.6 39 35 0 0 216 32.5 216 45 20.8 171 171 171 37.2 9.2 9.1 9.1 37.2

April 25, 2012

Alembic Pharma | 4QFY2012 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr) Equity share capital Preference Capital Reserves & surplus Shareholders funds Minority Interest Total loans Deferred tax liability Total liabilities APPLICATION OF FUNDS Gross block Less: acc. depreciation Net block Capital work-in-progress Goodwill Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Mis. Exp. not written off Total assets 434 162 272 27 3.3 542 6 114 421 214 328 630 441 195 246 80 3.3 688 47 182 458 535 153 17.3 499 528 230 298 120 3.3 793 41 156 596 286 507 (1.0) 927 551 269 282 150 3.3 1,025 172 172 681 330 694 (1.0) 1,128 328 5 630 95 10 499 406 8 927 464 6 1,128 FY2011 37.7 259 297 FY2012E 37.7 357 395 FY2013E 37.7 475 513 FY2014E 37.7 621 658

April 25, 2012

Alembic Pharma | 4QFY2012 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2011 107 30 (49) 19 69 (61) (61) 11 (59) (22) 53 (17) (9) 15 6 FY2012E 161 34 (96) 31 68 (76) (76) 33 (22) 38 49 41 6 47 FY2013E 163 37 (48) 36 116 (112) (112) 45 (33) (22) (10) (6) 47 41 FY2014E 216 39 (57) 47 151 (53) (53) 58 (45) 19 32 131 41 172

April 25, 2012

Alembic Pharma | 4QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 1.1 2.3 4.7 0.1 0.2 6.5 0.7 1.6 6.3 0.4 1.0 7.2 2.1 66.1 64.0 60.1 99 3.3 61.1 57.7 53.2 53 3.4 63.8 61.4 54.2 64 3.5 63.4 61.0 53.9 96 17.9 18.9 26.3 25.0 26.0 37.6 26.2 27.0 27.5 29.4 30.7 29.2 9.6 79.9 1.9 14.6 5.1 1.1 25.0 11.7 80.8 2.7 25.8 10.0 0.6 35.3 11.9 76.7 2.5 22.3 9.4 0.4 27.7 13.5 79.2 2.0 21.7 6.3 0.6 30.6 4.5 4.5 6.1 1.0 15.7 6.9 6.9 8.7 1.0 21.0 6.6 6.6 8.6 1.5 27.2 9.1 9.1 11.1 2.0 34.9 12.5 9.3 3.6 1.8 1.2 9.7 2.2 8.2 6.5 2.7 1.8 0.8 5.5 2.2 8.5 6.6 2.1 2.6 0.9 6.2 1.5 6.2 5.1 1.6 3.6 0.7 4.7 1.2 FY2011 FY2012E FY2013E FY2014E

April 25, 2012

Alembic Pharma | 4QFY2012 Result Update

Research Team Tel: 022 - 4040 3800 DISCLAIMER

E-mail: research@angeltrade.com

Website: www.angeltrade.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Alembic Pharma No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

April 25, 2012