After the announced de-merger of the Alembic, the Real Estate arm has got listed today, while the Pharmaceutical arm will get listed after 3rd week of May'2011. We value the real estate arm on a conservative basis at ` 33/share, while Pharmaceutical company, i.e. Alembic Pharma is valued at ` 71/share.
Deal contours: Alembic has announced reorganisation plan for its business by de-merging the Pharma business into a separate company Alembic Pharma. Under the scheme, Pharma business constituting the domestic formulation, international generic and API businesses along with the manufacturing facility at Baddi, Panelav and Karakhadi will be transferred to Alembic Pharma. While Alembic will retain its Vadodara manufacturing facility (loss making Pen-G business) along with the power infrastructure (16MW 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 would receive one equity share of Alembic Pharma in the ratio of 1:1. Post the de-merger Alembic Pharma would have equity of Rs18.8cr of which 29.2% will be held by Alembic and the remaining will be with the shareholders of Alembic. Shareholding pattern in the Alem ic Pharma after taking into consideration 29.2% of Alembic remains the same. The company plans to list Alembic Pharma post the demerger will get listed after the 3rd week of May'2011.
Valuation: Alembic Pharma, we have valued the company at 12x FY2013 earnings on back of improving growth. While Alembic's loss-making API business is valued at EV/Sales of 0.6x FY2013E. On the land asset, the management could develop the land for Residential or Commercial purpose however the timeline is uncertain, we have conservatively valued the Land asset at Rs500 per sq feet. Given the uncertainty over the Alembic's API business continuity over the long term, the company could be looked under two scenarios. Under the first we assume that Alembic continues its loss-making API business arriving at a fair value of `38 for Alembic, while Alembic Pharma `71. However we stick to the first scenario as the Alembic currently plans to continue with the high loss making API business and assign a Target Price of Alembic `33 and Alembic Pharma `71. Hence at current juncture we maintain a BUY on Alembic. /font>
Assuming the API business is closed down
| ` | Value Per Share |
| Alembic Pharma | 71 |
| Alembic | 38 |
| Alembic's 30% stake in Alembic Pharma (20% discount) | 17 |
| Power Plant (16 MW at replacement cost of Rs4cr/MW) | 5 |
| Land bank (100 acre @ Rs2.2cr per acre) | 16 |
| Assuming the API business continues | |
| ` | Value Per Share |
| Alembic Pharma | 71 |
| Alembic | 33 |
| Alembic's 30% stake in Alembic Pharma (20% discount) | 17 |
| Alembic API business (EV/Sales @ 0.6x FY2013E Sales) | 4 |
| Land bank (70 acre @ Rs2.2cr per acre) | 11 |
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