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Alembic Pharmaceuticals Ltd

| Q2 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤4th Nov 25

Summary : Alembic Pharma reported strong Q2 revenue growth and improved EBITDA, driven by new launches and international expansion, but faces near-term profitability pressure from its US branded foray and ongoing generic pricing challenges.

Management Perspective positive : Management expressed confidence in continued growth, improved EBITDA margins, and the long-term potential of new ventures like Pivya, despite acknowledging near-term challenges.

Concall Report Analysis & Insights

Business Overview

  1. Q2 revenue grew 16% year-on-year to INR1,910 crores across all businesses.
  2. Growth was driven by higher volumes, new product launches, and ex-US market expansion.
  3. Gross margin was 73%, with EBITDA margin improving to 26% from 23% last year.
  4. Acquired Utility Therapeutics, entering US branded market with Pivya for UTIs.
  5. India Branded Business grew 5%, led by Gynecology, Ophthalmology, and Animal Health.

Future Growth Prospects

  1. Expect net debt to gradually reduce in FY '27 with new product launches and facility growth.
  2. Plan to launch 4-5 products in Q3 and another 4-5 in Q4 this year.
  3. R&D focuses on complex injectables, peptides, and early entry opportunities for future growth.
  4. Pivya launch in late Q4 FY '26 targets stable 30 million UTI prescriptions in the US.
  5. EBITDA margin is expected to improve to 18-19% in the next two years, aiming for 20%.

Management Insights

  1. "Continued the good start for the year into the second quarter."
  2. "EBITDA growth of 32% reflecting better operating leverage."
  3. "Confident of the medium to long-term market opportunity that the product will help us capture."
  4. "Pretty confident that in the next couple of years, we will bump up towards the 20% kind of levels [EBITDA]."
  5. "US specialty side is a good de-risk from generic business pricing challenges."

Signs of Skepticism

  1. Management noted API growth was 'exceptional' this quarter, implying it may not be sustainable.
  2. Lack of clear quantification for the impact of GST disruptions on domestic business growth.
  3. Management avoided providing plant-level utilization data for financial modeling purposes.

Risk Factors

  1. Continued pricing pressure persists in US Generics and API segments.
  2. Pivya launch will impact near-term profitability for a couple of quarters.
  3. GST 2.0 implementation caused a temporary pause in billing for India business.
  4. API business growth remains challenging, despite an exceptional quarter.
  5. Injectable onco plants are currently running below anticipated utilization levels.

Good To Know

  1. R&D expenses increased 41% year-on-year to INR 187 crores for the quarter.
  2. Net working capital increased to INR2,921 crores from INR2,734 crores.
  3. Net debt rose to INR1,280 crores due to working capital and the Utility Therapeutics acquisition.
  4. Profit before tax grew 34% year-on-year to INR225 crores.
  5. ROW generics business has grown at a CAGR of almost 20% over 7-10 years.

Key Drivers

  1. Pivya launch in US branded market.
  2. Increased utilization of new facilities.
  3. Strong R&D pipeline for complex products.
  4. India business catching up with IPM.

Key Analyst Discussions

Competitive Environment

  1. US Generics market continues to face persistent pricing challenges.
  2. API business remains challenging, with muted demand over the last eight quarters.
  3. Generic Entresto launch faced significant competition and lower-than-expected pricing.
  4. US UTI market for Pivya has seen few new product introductions, offering a niche opportunity.

Market Trends & Consumer Behavior

  1. India business growth was marginally impacted by GST 2.0 migration and festive season billing pauses.
  2. Acute business, affected by post-COVID base effect, expects to catch up with IPM growth soon.
  3. Azithral sales base is stabilizing and showing signs of upward movement.
  4. The US UTI market is stable with 30 million prescriptions, making Pivya attractive.

Financial Highlights

  1. R&D spend increase is primarily due to formulation development, injectables, and complex injectables.
  2. Full year R&D guidance remains INR600-650 crores, expected to be around 8% of revenue.
  3. EBITDA margin is projected to reach 18-19% in the next two years, targeting 20%.
  4. Gross margins are guided at 70%+, with quarter-on-quarter variations due to product mix.
  5. Other expenses are fixed costs, with operating leverage improving due to better capacity utilization.

Product Composition

  1. India Branded Business saw accelerated performance in Gynecology, Ophthalmology, and Animal Health.
  2. Cough & Cold segments grew in line with market trends.
  3. New product launches include 2 in India and 3 in the US, with more planned.
  4. Peptide development includes GLP-1s like Mounjaro Tirzepatide, but not first phase for Semaglutide.
  5. Entresto, a new launch, benefited from volumes but is experiencing some erosion.

Strategic Considerations

  1. US branded foray with Pivya will involve a gradual ramp-up of the field force, targeting women's health.
  2. Investment in Pivya includes upfront costs and $12 million in milestone payments.
  3. Confidence in Pivya stems from its proven track record in Europe and niche market opportunity.
  4. R&D strategy focuses on differentiated and complex products like injectables and peptides.
  5. No immediate plans to expand the sales team in the India business.