Alembic Pharmaceuticals Limited — Q2 FY25 earnings call

Call held 7 Nov 2024

Management summary

Alembic Pharma delivered a mixed performance in Q2 FY25, characterized by strong volume growth in the US and robust performance in the Rest of World (ROW) and Animal Health segments, offset by a sharp decline in the API business. Management is highly optimistic about a 'much stronger' H2, banking on a back-ended launch pipeline of ~10 products in the US and normalized supply chains in ROW. While India's acute segment faced headwinds from a delayed monsoon, the specialty portfolio remains on a steady growth trajectory.

Highlights

  • Total revenue grew 3% YoY to ₹1,648 crores, driven by US volume and ROW growth.

  • EBITDA increased 18% YoY to ₹257 crores, with margins at 15.6% of sales.

  • Net profit grew 12% YoY to ₹153 crores; EPS stood at ₹7.79 per share.

  • US Generics revenue grew 5% to ₹467 crores, supported by 25% volume growth despite price erosion.

  • India branded business grew 6% to ₹609 crores, with specialty therapies showing high single to double-digit growth.

  • API business saw a significant 15% degrowth due to price erosion and loss of key accounts.

  • R&D spend was ₹133 crores (8% of sales), with FY25 guidance narrowed to ₹500-520 crores.

  • Gross borrowings spiked to ₹995 crores due to dividend outflows and inventory build-up for H2 launches.

Concerns

  • US Price Erosion

Key financials

  1. Revenue ₹1,648 Cr +3%YoY
  2. EBITDA ₹257 Cr +18%YoY
  3. EBITDA Margin 15.6%
  4. Net Profit ₹153 Cr +12%YoY
  5. EPS ₹7.79 +12%YoY
  6. Gross Margin 74%

What they filed

Q1 FY27: revenue up 25.7%, net profit up 11.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,648 1,693 1,770 1,711 1,910 +16%1,876 +11%1,848 +4%2,150 +26%
EBITDA239 260 271 281 316 +32%292 +12%228 −16%332 +18%
Net profit153 138 157 154 184 +20%132 −4%202 +29%172 +12%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • India Branded Business
    ₹609 Cr Revenue6% Growth
  • US Generics
    ₹467 Cr Revenue5% Growth25% Volume Growth
  • Ex-US Generics (ROW)
    18% Growth
  • API Business
    -15% Growth
  • Animal Health
    20% Growth

Guidance & targets

Revenue

  • Ex-US Generics (ROW) Growth Revenue · H2 FY25 · High confidence 15% to 20%
    I expect that the H2 will remain at these similar levels 15% to 20% growth, at least, for the ROW business.

    — Pranav Amin, Managing Director

  • India Business Growth Revenue · H2 FY25 · Medium confidence high single digit
    We should do a high single digit growth at least in H2.

    — R.K. Baheti, CFO

Volume

  • US Product Launches Volume · H2 FY25 · High confidence 10
    We should launch about 10 products in H2 as well.

    — Pranav Amin, Managing Director

Margin

  • Gross Margin Range Margin · FY25 · Medium confidence 72% ±
    So I think 72% ± is a good range to be in.

    — R.K. Baheti, CFO

Other

  • R&D Spend Other · FY25 · High confidence ₹500-520 crores

    Previously ₹550 crores → ₹500-520 crores

    It will be a little bit on the lower side, we would be closer to the INR500 crores, INR520 crores kind of levels.

    — Pranav Amin, Managing Director

Debt

  • Borrowing Level Debt · by end of FY25 · Medium confidence much lower

    From ₹995 crores today

    hopefully, the borrowing level will be much lower by -- before end of the year.

    — R.K. Baheti, CFO

Risks & concerns

  • US Price Erosion

    high

    Erosion is in the high single digits to low double digits, requiring high volume growth and new launches to offset.

    Management acknowledged

  • API Pricing and Competitive Pressure

    medium

    Aggressive pricing from China and loss of key accounts led to a 15% segment decline.

    Both acknowledged

  • Rising Debt and Working Capital

    medium

    Borrowings rose to ₹995 crores due to inventory build-up for H2 launches and dividend payments.

    Analyst acknowledged

  • Lag in R&D Filings

    low

    A temporary lag in filings (only 4 in H1) due to a shift toward complex generics and previous cost-reduction measures.

    Management acknowledged

Areas of evasion (2)

  • Specific initiatives for domestic growth beyond 'productivity'
  • Specific dates for settlement-based product launches (Bosutinib/Olaparib)

Q&A highlights

2 direct
Slowdown in India Specialty and Acute Segments Partial
Growth not driven by increase in number of field force. It's more driven by better productivity out of our existing team... I do not like to get into details at this moment.

Management was defensive regarding specific growth initiatives for FY26/27, emphasizing productivity over headcount expansion.

Asked by Rashmi S., Dolat Capital

API Business Degrowth and Account Loss Direct
It's just purely related to pricing... Sometimes, buyers do it to getting a better price when they keep switching between 2 vendors as well... We're also seeing China get a little more aggressive on the API side.

Reveals structural pricing pressure and competitive intensity from China impacting the high-margin API segment.

Asked by Tushar Manudhane, Motilal Oswal

GLP-1 Strategy and Pipeline Direct
We will target semaglutide and tirzepatide both... Sema, we will not be in the first wave, we will be a little late... we will manufacture in-house.

Confirms Alembic's entry into the high-growth GLP-1 space with in-house manufacturing, though they will miss the first generic wave for Semaglutide.

Asked by Ankit Gupta, Bamboo Capital

2 min read 5 chapters

Detailed narrative

US Generics: Volume Overcomes Value Erosion

The US business grew 5% to ₹467 crores, a result that masks a significant 25% surge in volumes. This volume growth was necessary to offset persistent price erosion, which management characterized as being in the high single to low double digits. With 8 launches in Q2 and another 10 planned for H2, management expects market share gains to accelerate as these products ramp up. The oncology facility also successfully cleared a surprise US FDA inspection with zero observations (no Form 483).

India Branded: Specialty Resilience Amidst Acute Headwinds

India revenue grew 6% to ₹609 crores, led by strong performance in specialty segments like Antidiabetic (18%), Ophthalmology (13%), and Cardiology (11%). However, the Acute segment, particularly the flagship brand Azithral, faced a high base and a slow start to the monsoon season, leading to flat performance. Management expects a recovery to high single-digit growth in H2, driven by improved doctor footfalls and better productivity from the existing field force rather than headcount expansion.

API Segment: Structural Shifts and Competitive Pressures

The API business was a major drag this quarter, declining 15% YoY. Management attributed this to a 'fundamental business shift' where some partners moved to alternate sources for better pricing. Increased aggression from Chinese suppliers and general price erosion in the segment have impacted margins. While management expects H2 to remain at these lower levels, they anticipate a recovery starting in FY26 as they work to regain lost accounts and leverage their high-margin API portfolio.

Strategic Pivot to Peptides and GLP-1s

Alembic is making significant investments in the peptide and GLP-1 space, including a new peptide block at their existing API facility. They have confirmed plans to target Semaglutide and Tirzepatide with in-house manufacturing capabilities developed over the last 4-5 years. While they admit they will be 'a little late' and not part of the first generic wave for Semaglutide, they view the expanding indications for GLP-1s as a massive long-term opportunity that justifies current capex.

Financial Outlook: Inventory Build-up and Debt Management

Gross borrowings rose to ₹995 crores, up from ₹784 crores a year ago, primarily due to a ₹200+ crore dividend payout and strategic inventory build-up to support H2 launches. Management expects working capital to normalize and debt to reduce significantly by the end of the fiscal year. R&D guidance was slightly moderated to ₹500-520 crores as the company focuses on more complex filings, which has caused a temporary lag in the number of ANDA submissions.

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