Alembic Pharmaceuticals Limited (APLLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Alembic Pharmaceuticals Limited. As a reminder, this conference call is only for analysts and institutional investors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Isha Lamba, Head, Investor Relations and Corporate Development. Thank you, and over to you, ma'am.

Thank you. Good evening, everyone. On behalf of the management of Alembic Pharmaceuticals, I welcome you to this earnings conference call for the quarter ended 30th June 2026. Present here with me are Mr. Pranav Amin, Managing Director; and Mr. G. Krishnan, CFO. A few other members of the management have also joined the call. I now hand the conference over to Mr. Pranav Amin. Thank you, and over to you, sir.

Thank you, Isha. Good evening, everyone, and thank you for joining us to discuss Alembic Pharmaceuticals performance for Q1 FY '27. I will give you a brief perspective of the quarter and the performance across our businesses, key strategic developments and our outlook for the balance of the year. Then Krishnan, our CFO, will take you through the financial performance in greater detail. Q1 FY '27 has been a strong start to the year with broad-based growth across all the businesses and continued execution on the strategic priorities that we outlined at the beginning of the year. The external environment continues to remain competitive with pricing pressure, regulatory expectations and geopolitical uncertainties. But the quarter reinforces our belief that execution quality, portfolio choices, manufacturing capabilities and launch discipline are increasingly becoming the key differentiators. During the quarter, consolidated revenue grew by 26% year-on-year. supported by growth across all our major businesses. India branded business grew 7%. International Generics grew 37% and the API business grew 33%. Starting with the India Branded business, Growth was supported by continued strengthening of focus brands, Specialty Therapies and the Animal Health division. Animal Health delivered a particularly strong quarter with 24% growth, while key therapies such as Gynecology, Gastrology and Ophthalmology continued to perform well. We are also seeing encouraging trends in field productivity and operating metrics. Our strategic priorities for India business is anchored on building a robust chronic portfolio, generating high-quality prescriptions, deepening engagement with specialty physicians and driving sharper, more disciplined commercial execution across the field force. With the appointment of Mr. Ramesh Juneja as Sales and Marketing Head for Human Health business, we have delivered -- we have strengthened the execution leadership. These initiatives are likely to position the India Branded business to accelerate towards market level growth over the coming quarters. Moving on to the international business. The standout feature for the quarter was the continued strength of the U.S. Generics business. U.S. revenues grew 49% year-on-year, supported by volume growth, new launches, especially Bosutinib and improving utilization of our manufacturing assets. Pricing pressure remains in the environment, but growth during the quarter was predominantly volume driven. During the quarter, we launched 7 products, filed 4 ANDA's and received 10 approvals, further strengthening the launch platform for future growth. So let me talk about the Branded Specialty business. The first 3 months were more of a soft launch, and we are encouraged -- this is the branded specialty business in the U.S. I'm talking about. The first 3 months were a soft launch, and we are encouraged by the good reception to both the product and its messaging. In parallel, we are adding new products to strengthen our women's health franchise. As the U.S. Branded Specialty business scales up over the next few quarters, we will see a positive contribution to profit, which should consequently drive a broader enhancement in consolidated margins. Coming to the ex-U.S. markets, they performed very well, supported by growth across markets. The API business also delivered a strong volume-led growth despite ongoing pressure in the market. Beyond the quarterly performance, we continued investing behind the long-term growth drivers of the company. We advanced our pipeline through additional filings and approvals, progressed our peptide development program, expanded partnership-led opportunities and continued building the U.S. branded business platform. We also continued investments in manufacturing capabilities, debottlenecking initiatives and capacity enhancement programs that will support future growth and improved operating leverage. Turning to the outlook. The first quarter has provided us with greater visibility into the trajectory of the business, particularly the U.S. Generics segment. At the beginning of the year, we had indicated that the U.S. Generics could grow in the low to mid-teens based on the performance and the trends we-----------Q1, the launch outlook and current volume trends, we now expect the U.S. business to grow mid- to high teens in the year, subject to normal market conditions and continued execution. Growth guidance for the other businesses remains as indicated earlier. As a result, we believe the overall growth outlook for the company can improve from the low double-digit range that we had discussed earlier to closer to the mid-teen range for FY '27. Importantly, this improved outlook is not being driven by any change in our investment agenda. We will continue investing behind R&D, the U.S. branded platform, manufacturing capabilities and future growth opportunities while maintaining discipline on capital allocation and profitability. Overall, the quarter reinforces our confidence in the business, the quality of our growth platform and our ability to deliver strong growth while continuing to invest for the future. With that, let me hand over to our CFO, Krishnan.

Thank you, Pranav. Good evening, everyone. And before I begin, I would like to mention that during this call, we may make certain forward-looking statements, and these statements are based on management's current expectations and are subject to risks and uncertainties that may cause the actual results to differ materially. And with that, let me take you through the financial performance for the quarter. We had a strong quarter from both growth and profitability perspective. Revenue grew at 26% year-on-year to INR 2,150 crores, reflecting broad-based growth across businesses and continued momentum across the portfolio. Importantly, profitability also improved despite continued investment behind the future growth platforms. Reported EBITDA grew at 21% year-on-year to INR 348 crores with EBITDA margin at 16%. The performance reflects higher volumes, contribution from new launches and better utilization of our manufacturing network, while also absorbing planned investments in R&D and the U.S. branded platform. As planned, we continue to invest behind future growth opportunities and our R&D expenditure during the quarter was at INR 186 crores, representing about 9% of revenue, driven by peptide development activities, exhibit batches and higher regulatory filings and portfolio development initiatives. These investments are aligned with our strategy of strengthening the pipeline and expanding our participation in complex and differentiated opportunities. We also have continued investing in building the U.S. branded platform. While these investments have a near-term impact on profitability, they remain strategic in nature and are directed towards expanding market access, strengthening commercial capabilities and building a scalable specialty franchise in the U.S. Profit before tax grew at 17% year-on-year to INR 223 crores, reflecting the strength of the underlying operating performance and better operating leverage across the business. At PAT level, the quarter reflected a higher effective tax rate of about 22% compared with around 19% in the corresponding quarter previous year. As mentioned in our previous call, we migrated to the new tax regime and consequently, profit after tax grew at 12% year-on-year to INR 173 crores, underlining the resilience of the business performance. To summarize, the quarter demonstrates 3 things. First, growth remains strong and broad-based with revenue growth of 26%. Second, the business continues to deliver resilient profitability, factoring strategic investments as reflected in 21% EBITDA growth, 17% profit before tax growth and 12% profit after tax growth. Third, we continue to invest meaningfully in R&D, manufacturing capabilities and U.S. branded platform, consistent with our growth strategy. The improved FY '27 outlook that Pranav discussed that is closer to the mid-teen growth is supported by stronger execution and operating performance, while our investment priorities and long-term strategy remain on track. With that, we can now open the floor for questions and answers.

Question comes from the line of Damayanti Kerai with HSBC.

Congrats for a very good set of numbers. My first question is on the U.S. business. Pranav, you mentioned volume expansion as well as opportunities like Bosutinib were the key drivers for the quarter. So just wanted to confirm, you have 18 marketing exclusivity on 2 strength of Bosutinib, right, which has helped the 1Q number?

Yes, that is correct. We have the exclusivity on the 100 and 500mg.

Okay. And apart from that, like any other meaningful launches which were added to U.S. because your, I think, U.S. run rate for launches have picked up in first quarter.

Yes. So actually, we've -- what's happened is, as I said -- okay. So let's take 2 parts of it, right? I think ex-Ivosidenib, also our business has grown over 20% in the U.S., closer to 25% that we've grown. That is predominantly due to the new launches. As you know, with Alembic, what we do is we gradually pick up share. So new launches, when I say pick up share, is what we would have launched in Q4 as well as Q1. We had about 6 to 7 launches in Q1 and some in Q4. So I think both of those put together have also added a little more momentum to the U.S. sales going forward.

Okay. And as you revised up the outlook for U.S. sales in FY '25, we can assume new launch momentum should continue in the coming quarters as well?

Yes. I think for the rest of the year, we should be launching another 15-odd products.

That's helpful. Then my second question is your investment towards the U.S. branded portfolio where you have added another product. So what kind of investment you foresee for your efforts to really scale up this business? And you mentioned this will be eventually contributing positively to the profitability part. So in your initial experience with Pivya, how -- what kind of time line we can assume when these products will start contributing positively to EBITDA? Like what will be the gestation period before we see benefits flowing in?

Yes. So as I mentioned, it's a soft launch. And when we -- the other 2 products are much smaller and we've just got into them. But Pivya also has been a soft launch. I think we will gradually start seeing a trend towards the second half of the -- towards the end of the year. I expect that this will start contributing positively next financial year onwards. As we move forward quarter-on-quarter, we will gradually see a reduction in the drag that this business is causing us. And my goal is that next year onwards, we should start seeing a positive contribution.

Okay. And in terms of investment, if you can call out any amount or where you have invested basically the SG&A team or you need to invest in building the marketing platforms, et cetera?

Yes. So the investment is there's no hardware investment at all. The only investment that we have is the field force and the marketing expenses that we have. The product comes from a CMO. So there's no manufacturing, there's no facility. It's only a pure-play branding exercise. And the expense that you see is only the marketing and branding and promotion costs.

Okay. So this cost would trend in line with how the top line picks up, right, and accordingly.

Yes. So I think it will be -- the revenue will scale up. It won't be linear, but more like a J curve. So I think initially, we will have investments for the first quarter. I think we've seen one full quarter where we've been investing. Second quarter also, we'll invest. I think gradually, we'll see the sales pick up towards the end of the year. And that's why I'm saying that we should hopefully start getting to breakeven by the end of -- as a trend to the end of this year, we'll see positive contribution next year.

And my last question is, as you revised up your FY '27 top line numbers, what -- how should we look at the EBITDA margin trajectory while continue?

Yes. Okay. So Krishnan, would you like to take the EBITDA question?

Yes. Thanks. So Damayanti, the EBITDA margin will broadly reflect the operating leverage that we have seen in the first quarter. And we -- if I look at the underlying business ex U.S. branded business, we have seen operating leverage playing out. And like we guided in the first Q4 results last year when we spoke in May, we said that there will be good operating leverage that will play out on the core business, which will partially get offset by the U.S. branded, and we hold on to that view at this point of -- so we should see a similar trajectory of operating margin getting maintained at an overall level as we see operating leverage playing out. And U.S. branded business, like mentioned, right? So it should scale up as we progress in the subsequent quarters, which should bring back the margin -- build up the margin profile.

Okay. But it's safer to assume margin should be in the high teens, right, high teens?

Yes.

The next question comes from the line of Chirag with DSP Mutual Funds.

Multiple small questions. Sir, is the Pivya cost in the base in the first quarter of '27, and we should now see flattening or similar levels going forward? How are we thinking?

Krishnan, do you want to take that?

Yes, I'll take that. So yes, Q1 was the first full quarter of U.S. branded business launch. And we should see the margin profile should get better from here. And for the full year, if I have to remind in the previous call, we guided about 150 basis points of dilution in the margin for the full year, and we hold on to that view at this point of time. And obviously, in the ramp-up phase, you will have the first few quarters of higher impact. And then as the sales picks up, it should moderate, the margin impact should moderate. So we still hold on to that view.

So in Q1, the impact on margins has been higher than this 150 bps is what you're trying to allude to?

Yes.

Understood. Fair point. And on the base business in the U.S., you talked about 25-plus percent kind of growth in the U.S. business ex-Bosutinib. This implies that the base business is now upwards of $75 million, $76 million a quarter. Is this the new base this versus, let's say, $60 million, $65 million that we've been seeing in the past few quarters? Is this the new normal new base that we should kind of think about?

So Chirag, it's -- I would like it to be the new normal. But I think as you see, we have to balance that out with the erosion that we see and if we may lose some share. But I'm confident that the momentum that we have going forward, we should be able to continue some of it. Let's see how much price erosion we see for the next few quarters. But at least for the next quarter or 2, I see that this trend should continue.

Understood. Fair point. And on Bosutinib, have you seen full quarter sales impact through in the first quarter or...

No, I think -- so one thing about Bosutinib is the volumes of Bosutinib are quite small. It's because the indication is a small indication, while pricing is good. But we saw in the quarter only 1 month of sales. It was launched only in June. So you only have 1 month of sales.

Understood. And how are you thinking about sustainability of this revenue Pranav, going forward beyond the exclusivity?

I think it's tough to say. I don't know that when they will -- because it's such a low-volume product, I don't -- I can't really foresee what's going to happen after a few months. I know this exclusivity is there till November. So you'll see Q2 and part of Q3, you will hopefully have some sales from Bosutinib. Over and above that, I think if there is competition, it will pretty much be -- it will be quite drastic because the volumes are very small.

But any sense on the competition, incremental competition that?

As of now, no, I haven't seen -- I think the other incumbent who's got the other strength that may come in and we may get for the strength that we don't have. But I think that's what may happen. But as of now, I'm not seeing anybody else in the market so far.

For some time to come, this can be a 2-player market is how you're thinking about it?

Until November is what I know for sure. I really can't guide above beyond that.

Understood. Fair point. The other bit is on the gross margins with having Bosutinib, gross margins are flattish quarter-on-quarter at least. Can you give us a sense -- and this is with the new currency rate, et cetera. So just what is happening over here? I understand that there's a Pivya cost as well in this one. But I was looking at the gross margin more so, not so much at the.

Can I take that Pranav?

Yes, please.

So see, gross margins quarter-on-quarter was pretty much similar. And if you remember, we had a guidance of about 70% to 75% range for gross margins, and it sits well within that. And there have been a couple of factors which has influenced the gross margin. One is, of course, with a bit of the Middle East issues going on, we had seen solvent prices going up. That has had a bit of impact. And second is, of course, the product mix itself will -- has played a part. And third is we had taken a preventive debottlenecking maintenance upgrade in one of our facilities, especially the Optal line. And that has now expanded the capacity without any incremental CapEx investment. And that shutdown was taken in the first quarter, which has resulted in a bit of under-absorption in the cost. So these are the 2, 3 factors that -- where you would see the gross margins a bit diluted. But otherwise, it's still within the range that we have guided earlier, and we are comfortable with that.

Understood. Can I ask more questions? I have a few.

Sure. Yes, sure.

Sure. So animal business now is bigger than acute. This has grown very well for us. How long can we keep continuing to grow in this 15%, 20% zone? And incrementally, this should help report overall better India business as the acute becomes smaller and smaller. Just how are you thinking about this piece? I know you've guided towards better performance going forward, but just on the animal piece.

Krishnan, you will take that?

Yes. So just to correct, Animal Health is about 22% of our overall revenue in the India business. And the acute is about 37%, right? So but yes, the underlying -- so the good growth in the animal health, we continue to grow at about 20% plus. And we see that it's a combination of 2, 3 factors, again, expansion within the existing portfolio that we have got in the Animal Health which is around farm animals and poultry and we see that has continuing the momentum, along with the field force driving better volumes, better productivity, focus on operational efficiency measures that's continuing to build the momentum in Animal Health.

For the past few quarters, we've been in this $40 million kind of -- and prior to that, we were in this $45 million zone. So just your sense of -- is this like a linear thing? How are you thinking about?

So the ex U.S. business has been a strong business for us, if you see over the last 5 years. And I think just maybe there may be some quarterly to quarterly variance because we are -- this is mainly a B2B business, right? And so there may be some quarterly to quarterly variance in terms of supplies. But at the end of the year, we stick to the guidance. I think about 15-odd percent or so of what I've guided for that the business will grow, and I think we're quite confident about that.

This is in USD terms?

This is in INR terms.

The next question comes from the line of Rahul Jeewani with IIFL Securities.

Sir, on the India business, you pointed to some management changes which you have implemented. So while on the Animal Health side, we continue to do well, when do you see our growth picking up on the human formulations business in India?

So it's a good question, Rahul. I think, yes, 2 separate things. So the animal business, we've left it as is. I think that is going on. On the human health side, we've got Ramesh Juneja, who's joined us recently and who is working at it. I think it will take a couple of quarters because it's a work in progress. I think we're going grassroot down to each territory, the nonperforming territories what is happening with the new launches. So I think let's wait for a quarter or 2 to start seeing -- but I think we will start seeing some positive trends in another quarter or 2.

Sure, sir. And within the acute segment, have we started seeing some sort of growth pickup for our acute portfolio? And whatever happened with respect to Azithral during COVID, post COVID, et cetera, is that largely in the base now as far as the acute segment is concerned?

Yes, Krishnan, do you want to take that?

Yes, Rahul, yes, we are seeing that trajectory improving, especially on Azithral and also in the overall portfolio of acute around cough and cold as well as we are seeing that traction building up.

Okay, sir. And coming back to margins for FY '27, at one point in time, you indicated that the operating leverage on the base business would get offset by the investments on the U.S. branded side. And at another point in call, you referred to high teens margins as well. So I'm a bit confused in terms of what's margin guidance for FY '27?