Alembic Pharmaceuticals and Indigo Paints: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are Alembic Pharmaceuticals and Indigo Paints. These two stocks have shown great potential with positive financial estimates for the coming two financial years. So, let’s go through the details of the two stock recommendations for the period between October 21, 2024, and October 25, 2024.

Alembic Pharmaceuticals Limited

Its CMP was ₹1,158 (as on October 18, 2024) and its target price is set at ₹1,451 with an upside potential of 25%.

Investment Rationale

• Alembic Pharmaceuticals Limited is a vertically integrated research and development pharmaceutical company. It manufactures and markets generic pharmaceutical products all over the world. Its state-of-the-art research and manufacturing facilities are approved by regulatory authorities of many developed countries including the USFDA.
• Recently, it has received final approval from the US Food & Drug Administration (USFDA) for its Abbreviated New Drug Application (ANDA) Betamethasone Valerate Foam, 0.12%. It has a cumulative total of 213 ANDA approvals (185 final approvals and 28 tentative approvals) from USFDA. In Q1FY2025, it filed 3 ANDAs and cumulative ANDA filings are at 262.
• According to the management, new launches continue to do well along with promising future launches across key segments. In Q1FY2025, it made 2 Launches in the US market and expects 25+ product launches in FY25. Cumulatively 149 products are launched in the US market.
• In Q1FY2025, net sales grew by 5% to ₹1,562 crores. India Branded Business grew 9% to ₹572 crores for the quarter and US Generics grew 18% to ₹461 crores for the quarter. EBITDA up 14% to ₹239 crores and net profit up 12% to ₹135 crores.

• Capacity addition is initiated in Oral solids to address the immediate demand of the US and ex-US markets. Products from new facilities to drive growth in coming quarters.
• In the API business, 1 US DMF was filed in Q1 FY25. 133 Cumulative DMF filings with the US FDA. It expects steady growth for this business. Future capacity expansion is on track in this segment. It continued to focus on improving cost efficiency to maintain a competitive position in the market.
• Investment in a new facility in the Indian market would drive business growth. It is improving depth in the current strength with new launches planned in FY 25 & launches done in FY 24. It is increasing its focus on the animal health space with therapy-leading products. Animal Health business grew 23% in Q1FY2025 with a basket of strong brands driving outperformance.

Shareholding Pattern

Promoter shareholding is highest in Alembic Pharmaceuticals at 69.61%.

Valuation

In Q1FY2025, the company recorded robust growth in its specialty therapies of gastroenterology, gynecology, antidiabetic, and ophthalmology and performed relatively better than the market in acute therapies. Moreover, the U.S. business has displayed marginal signs of recovery which augurs well for Alembic. The ex-U.S. business should continue its upward climb fueled by new product launches and geographic expansion. Moreover, as the new facilities are filled in with more products and higher volumes, its operating cost would be better absorbed, leading to enhanced profitability. Going forward, news launches across the market and production ramp-up in new facilities would drive future business growth. Thus, it is expected that the stock will see a price target of ₹1,451 in an 8 to 10-month time frame on a target P/BVx of 4.8x and FY26 BVPS of ₹302.21.

Risk

• Intensive Competition
• Regulatory Risk

Indigo Paints Limited

Indigo Paints’s CMP was ₹1,569.05 (as on October 18, 2024) and its target price is set at ₹1,969 with an upside potential of 25%.

Investment Rationale

• Indigo Paints Limited has evolved into one of the fastest-growing providers of decorative paints, catering to both interior and exterior applications. Its portfolio comprises a variety of advanced products, including metallic emulsions, tile coat emulsions, bright ceiling coat emulsions, and floor coat emulsions, among others. Recently it forayed into the construction chemicals and waterproofing segment (WPCC), with the acquisition of Apple Chemie India Pvt. Ltd. It operates with 5 manufacturing plants, more than 18000 active dealers, and 53 depots across 28 states in India.
• In Q1FY2025, Net Revenue grew by 7.8% to ₹311.0 crores. EBITDA declined by 3.5% to ₹47.4 crores due to a sharp increase in employee cost, as it drastically expanded its sales force in more states. According to the management, going forward, there would not be a significant increase in employee cost on a Y-on-Y basis from Q2 onwards, and it do not expect to see this aberration in the future. Net profit was down by 15.4% to ₹31.5 crores, due to an additional depreciation charge incurred on account of the commissioning of the Tamil Nadu plant in September 2023. The company expects a sharp uptick in the topline and bottom-line growth from Q2FY205. A 2% price hike also augers well for an overall improvement in gross margin.

• On the CAPEX front, the company is undergoing, a major brownfield expansion at Jodhpur. According to the management, the work is progressing well, on the state of the art water based paint plant and the solvent-based plant. This unit caters to Most of the Northern, Western, and Eastern states. Post expansion it would enhance its production capabilities and assist in meeting the growing demands through its diverse product offerings.
• It is focusing on increasing spending on digital media for its advertisement. It has already started several initiatives and will soon intensify its engagement with the target audience through digital media. It expects the overall increase in A&P spending will be less than the expected top-line growth in revenues, and hence, the A&P spending as a percentage of revenue is expected to continue to decline.
• It is expanding its footprint beyond the decorative paint market. Its foray into construction chemicals and waterproofing solutions presents a significant opportunity to diversify its revenue streams.

Shareholding Pattern

In the overall shareholding of Indigo Paints, promoters have the highest shareholding of 53.93%.

Valuation

The company has a portfolio of differentiated and innovative products which would drive future growth. Its diversification into construction chemicals and waterproofing solutions would enable it to tap into the high-growth infrastructure segment in India. Recently it has expanded its network through the addition of dealers is enabling the company to cater to diverse customer segments effectively. Thus, it is expected that the stock will see a price target of ₹1,969 in an 8 to 10-month time frame on a one-year average P/BV of 7.98x and FY26 BVPS of Rs.246.75.

Risk

• High commodity prices
• Economic slowdown

Conclusion

These two stocks, one from the pharmaceutical sector and the other from the paint sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:

https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.