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IndiaNivesh Research IndiaNivesh Securities Private Limited601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800

Alembic Ltd.Company UpdateApril 11, 2011

Bhagwan Singh Chaudhary

Research AssociateMobile: +91 77383 93427Tel: +91 22 66188835bhagwan.chaudhary@indianivesh.in

Alembic demerger detailsAlembic Ltd has demerge its pharma business and its other business. After demergernew entity will be APL (Alembic Pharmaceuticals Ltd) which will operate mainpharma business (API & Formulations) except Pen G business. Post demergerAlembic will be left with Pen G business, land and power assets.

As proposed by the company, after demerger one share holder in Alembic will getone share in APL. As a result, share holding pattern of the two entities is likely to bein the following manner. (see table given below)

Share(Mn) % Share(Mn) % Share(Mn) %Promoters 84.7 63.5% 84.7 45.0%Public 48.7 36.5% 48.7 25.8%Alembic 55 100% 55 29.2%

Total 133.4 100% 55 100% 188.4 100%

Pre and Post demerger Pre demerger Post demergerAPLAlembic

After demerger the balance sheet of both companies is likely to be as given in thetable given below. Of total debt 15% is expected to go to Alembics balance sheetand 85% to APL.

Source: Company Filings; IndiaNivesh Research

Balance Sheet (Rs/mn) Pre Demerger

APL Alembic Ltd

Total Share Capital 267 377 267

Reserve 2,890 1,761 752

Networth 3,157 2,138 1,019

Debt 4084 3,471 613 Total Assets 7,241 5,609 1,632

Post Demerger

Value of both entities (Alembic & APL):Alembic LTD:Post demerger, Alembic is likely to be left with loss making Pen G business, land of approximately 115 acre in Baroda, out of which 45 acre is occupied by manufacturingfacilities and power assets consisting of 3 cogeneration plants of 11MW and 4windmills of total 5 MW. Additionally, Alembic will have 29% stake in APL.

In FY 10 Alembic has reported loss of Rs 240 million. Its net worth stands at Rs 1billion i.e (Rs7.64 per share). Additionally, its 29% stake in APL is likely to add Rs 2.30

per share to its net profit. However, its remaining land of 70 acre and power businessis still to be valued. On a lump sum basis, Alembic has the value of more than Rs 18per share (As we stated in our earlier report) . Currently its trading at Rs 24 pershare.

Sales details of combined entity:

Source: Company Filings; IndiaNivesh Research

FY10 ( Rs Mn) APL Alembic LtdNat Sales 11,365 10,215 1,150 EBITDA 1,169 1,300 (131) EBITDA margin 10% 13% 11%Depreciation 430 Interest 300 PBT 439 680 (240)

Tax 44 PAT 395 PAT Margin 3.5%

Source: Company Filings; IndiaNivesh Research

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Alembic Pharma Ltd (APL): APL business has shown consistent growth afterrestructuring. Its EBITDA margin in Q3 FY11 was at 15.8% level, mainly led by stronggrowth in domestic formulation business and restructuring efforts. In FY10 APLsPBT was Rs 680 million, however in 9 months of FY11, company reported net profitof Rs 640 million despite adjustment to the loss of Pen G business. In FY12, weestimate company to report net profit of Rs 1.05 billion (EPS =Rs 5.6) . Hence the

stock of demerged entity (APL) is expected to list at Rs 56 per share. (valuing at 10x of FY12 earnings estimate)

Our take:We mentioned earlier in our report that demerger of pharma business is likely tounlock the value. Currently, the share of Alembic Ltd are trading at Rs 24 and valuingits APL business at Rs 56 per share, the value of premerger stock of Alembic standsat Rs 80 per share.