Indore-based Alpa Laboratories (promoted by Purshottam Patel, M S Chawla, and Pravin Shah) manufactures pharmaceutical formulations with a range of products such as ethical drugs, generic drugs, over-the-counter drugs (OTC) and veterinary products in various dosage forms and markets them under the trademark, Alpa. It also undertakes contract manufacturing of formulations for a number of other pharmaceutical companies such as Cipla, Zydus Cadila, Lupin, Glenmark, Genom Biotech, and Jenburkt located both in India and abroad mainly in unregulated and semi-regulated markets in Africa, Latin America and Asia. For its own products, the company has established a marketing network covering both metro and mini-metro cities through a number of distributors and dealers spread across the country.

Alpa Laboratories is currently operating its capacities at nearly 90% utilisation. To cater to rising demand, it has planned a massive expansion program to add 1.5 times its existing overall capacity at a capital cost of Rs 58.21 crore with the commissioning scheduled for April 2008. The new plant is planned to be US FDA-compliant considering export prospects. The company is approaching the capital markets to mop up around Rs 65 crore to finance this expansion besides augmenting working capital and other contingencies.

Holding approvals to manufacture 1,366 formulations based on around 50 active pharma ingredients (APIs), Alpa Laboratories routinely manufactures 300 to 350 formulations based on market demand and limited formulation lines. The existing flexible manufacturing infrastructure helps it to change product-mix in response to changes in market demand. The company has been continually World Health Organisation(WHO) Good Manufacturing Practices (GMP)-certified since 2001. In the overseas semi-regulated markets, which contributed around 11% of sales in the year ending March 2007 (FY 2007), Alpa Laboratories holds registrations for around 40 formulations. Nearly 90 more are likely to get registered over the next 12 months.

After converting its veterinary segment, generating around 4% of its annual revenue, to ethical marketing in five states in India with an initial range of 27 products, Alpa Laboratories plans to start ethical marketing for human formulations as well, particularly for the high-value products that it manufactures.

Efforts are on to reduce the low-margin contract manufacturing business, contributing around 30% of the revenue. But once the expanded capacities come into play, Alpa Laboratories will try to include MNC pharmaceutical companies in its clientele for contract manufacturing.

Strengths:

1. Alpa Laboratores plans to venture into segments such as pro- and pre-biotics and pre-filled syringes due to consistent demand. Will also diversify into lifestyle disorder segments including diabetes, cardio-vascular and gynecology. Entry into such higher-end segments is likely to improve operating profit margin (OPM)..
2. Export is a lucrative market giving better margin compared with the domestic business. On completion of the expansion programme, the company will be able to ramp up exports, helped by the rising number of overseas product registrations.

1. Although implementation has started, the expansion project is behind schedule by three months and may get further delayed due to factors such as government approvals or delivery of equipment. So far has not placed orders for any of its capital equipment requirement.
2. Incurred negative cash flows in three out of the last five years including year ended March 2007.
3. The promoter group company, Alpa Labs (India), owns the trademark, Alpa, which the company has licensed. Alpa Labs (India) has common objects as per its memorandum of association, which could give rise to conflicts in future.

Valuation:

Alpa Laboratories has set a price band of Rs 62 to Rs 68 per equity share of Rs 10 each face value. At the lower band of Rs 62, P/E works out to 20.7. At the higher band of Rs 68, P/E is 22.7 based on FY 2007 EPS of Rs 3 on post-issue equity of Rs 21.56 crore. There are several listed pharmaceutical players focusing on the formulations business. The group of such companies is trading at a composite P/E of 13.2 only.