5 years on: Alembic m-cap up 4.5 times, pharma arm rises 13 times

Alembic has managed to revive from a loss of Rs 12 crore in FY12 to a profit of Rs 145 crore in FY17

As small shareholders of Alembic Ltd fight to get their representative appointed on the company’s board to ensure better investor returns, a look at its five-year growth shows the market capitalisation (m-cap) of the company has increased by about 4.5 times. 

In contrast, the m-cap of Alembic Pharmaceuticals has grown by almost 13 times during the same period. Interestingly, Alembic Ltd has managed to revive from a loss of Rs 12 crore in FY12 to a profit of Rs 145 crore in FY17. 

Alembic, India's oldest pharmaceutical company, had demerged its businesses in 2011 when its pharma business was spun off as a separate entity. The profitable businesses went to Alembic Pharma, while the real estate business and the loss-making Pen-G business went to Alembic Ltd. 

In FY12, the net sales of Alembic Ltd were Rs 116 crore, which has managed to grow slowly (at a five-year compounded annual growth rate of 4.5 per cent) to Rs 144 crore. Analysts say this is because prices of real estate in the Vadodara region have not appreciated at a rate the company would have liked. 

Nirav Kothary, JLL India’s managing director for Ahmedabad, says that in the past five years, while Vadodara has seen a moderate real estate growth of five-to-six per cent, Ahmedabad and Surat recorded 10 per cent and above.

For FY17, the standalone profit of Alembic Ltd was Rs 27.49 crore, but it had a profit of Rs 116 crore from associate companies, shows Capitaline’s research. 

“The company does not have any subsidiaries or joint ventures. Alembic Pharmaceuticals Limited and Alembic Exports Limited are associate companies,” its FY17 annual report said. Financial position of each of the associates was included in the FY17 financial statements. 

In comparison, Alembic Pharmaceuticals saw a five-year CAGR of 16.6 per cent in net sales between FY12 and FY17, from Rs 1,457 crore in FY12 to Rs 3,135 crore in FY17. Its profits swelled at a CAGR of 25.4 per cent during the period to Rs 403 crore. 

The figures would have looked even better had the FY17 profit after tax not fallen by 44 per cent (year-on-year) from Rs 720 crore in FY16. This was reflected in Alembic Ltd's profits as well, which too dipped 38 per cent from Rs 235 crore in FY16 to Rs 145 crore in FY17. 

Understandably, traders have shown more interest in Alembic Pharma's shares, the prices of which have swelled 13 times from Rs 48 a share in FY12 (year-end prices for each of the financial years considered) to Rs 624 a share in FY17. 

The m-cap, too, swelled proportionately, from Rs 912 crore to Rs 11,756 crore for Alembic Pharma. Alembic Ltd has managed to touch a market cap of Rs 979 crore. 

Under the demerger scheme of 2011, the pharma business constituting the domestic formulation, international generic and API (bulk drug) businesses along with the manufacturing facility at Baddi, Panelav and Karakhadi would be transferred to Alembic Pharma. Alembic will retain its Vadodara manufacturing facility (Pen-G business) along with the power infrastructure (16 MW used for internal consumption) and land assets at Vadodara (115 acres, including 45 acres currently used for the Pen-G facility).

Under the arrangement, shareholders of Alembic received one equity share of Alembic Pharma in the ratio of 1:1. Alembic Ltd's shareholders have benefitted from the growth in Alembic Pharma, but that is for the shareholders existing at the time of the demerger.