Financial Express Report
Alpa Laboratories is in the business of manufacturing pharmaceutical formulations, ethical drugs, generic drugs, over the counter (OTC) drugs and veterinary products in various dosages and forms. Apart from catering to formidable domestic players like Cipla, Zydus Cadila, Lupin, and Glenmark, the company also exports to countries like Iran, Iraq, Nigeria and Sri Lanka. It has categorised its business into four major divisions: generics, veterinary, exports, and contract manufacturing ( which includes outsourcing of bulk drugs, drug intermediaries, and formulations)
The company intends to put up a capital of around Rs 64.9 crore at the higher end of the price band. It intends to set up a new plant at Pigdamber, Indore to increase its production and testing capacities.
The plant will take into account the manufacturing of liquid injectibles, dry powder injectibles, tablets and capsules, ointments and house a new analytical laboratory. The company, with regard to production of liquid injections, intends to almost treble its capacity to 6,50,000 units from 1,50,000 with the current capacity utilisation of almost 97%.
It also plans to increase the production of dry powder injections to 3,25,000 ( from 125000), ampoules to 3,00,000 ( from 65,000), tablets to 15,00,000 ( from 1,50,000), capsules to 6,00,000(from 1,00,000), creams to 80,000 (from 40,000), ear and eye drops to 80, 000 (from 40,000) and dry syrups to 40,000 ( from 12,000). The pharmaceutical company aims to almost double its capacity of the above mentioned products, while the current capacity utilisation for these products being around 85-90%.
Investonomics :
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The pharmaceutical industry is growing at a CAGR of 13.7% per annum. It is eliciting investments both from MNCs and domestic players equally, which have more emphasis on bio-tech and aspects of brand development. According to the Boston Consulting group, contract manufacturing market in India would touch $900 million by 2010 and contract manufacturing in the Indian pharmaceutical industry is estimated to grow at an exponential rate. Hence, a company like Alpa Laboratories stands a good chance of leveraging this trend.
But a lot depends upon the projection execution capabilities of the company. It’s claim to treble its liquid injections capacity and almost double the capacities of various other products like dry powder injections, tablets, capsules, and dry syrups in a span of two years is crucial and calls for attention. The reason being, that these expansions may impact the short-term operating costs of the company and in turn affect earnings.
What is more significant is the company’s ability to manage the sales of the various products. In addition to this, the presence of promoters in the pharmaceutical business, under the name Alpa Labs India, which may result in the conflict of interest between Alpa Laboratories and Alpa Labs India.
Valuation :
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On the valuation front, considering the post-issue equity on a fully diluted basis, the company quotes a P/E of around 20.88(x) and 22.90(x) at the lower and upper end of the price band.
An immediate comparison with industry peers like Syncom Fomulations, Parental Drugs, and Venus Remedies which quote a P/E of around 4.4(x), 6.4(x) and 15.4(x) respectively shows that the scrip is high-priced. Investors must take into account these facts before taking the plunge.
Zerodha (Trading & Demat Account)
RHP
