Avoid: Alembic & Alembic Pharma

20120406

If I were to ask a common person what’s common between glycodin and yera glass-ware, I may get a blank face. I will get as much of a blank face if I were to ask who was the commissioner of IPL before Rajiv Shukla and after Lalit Modi? Some respondent’s faces in fact would be a newer shade of white. The answer is the Alembic pair of companies and it’s promoter Chirayu Amin. Rigorous googling reveals that his image is cleaner than expected, in spite of his close association with IPL.

Back-story:

Alembic Pharma (with the entire pharma business) was demerged from Alembic early last year with 1:1 shares allotted. Before demerger Alembic was available for Rs75 in Apr ’11. Now the pair is available for roughly Rs70 (52 + 18). The demerged Alembic owns the aggregate loss making businesses of real-estate, fermentation-chemistry, and captive power generation (roughly 16MW).

Alembic Pharma: I don’t like the fact that pro-forma fin. statements for FY10 have not been provided in the annual report. I fail to identify any strong story that can drive the business upwards. With trailing 6m PAT at 80cr and FY11 PAT at 60cr, the best guess PE is 6 which is still unpredictable if not hefty. This not a typical spin-off of the Joel Greenblatt recommended category.

Alembic: I was attracted to this stripped-down parent for real-estate. Their website directs to Alchemy (I hope not financial). Their investor relations confirmed my doubt that Alembic and Alembic Pharma have 0% share in Alchemy. To quote them verbatim, “Alchemy is a centralized resource management company providing consultancy and expertise on real-estate development projects of group/sister companies”. Neither listed pair owns anything in Shangri-La (369 residences). Alchemy would develop real-estate as Samsara project (531 residences) on the 11 acre of Alembic land, and pay ‘commission fees’ to Alembic in return. For the 3 reported quarters of FY12, there is zero revenue recognition from real-estate. All real-estate revenue recognition may begin from FY13 according to investor relations. I don’t understand what happens to the real-estate arm of the business once the 11 acre revalued plot of land is disposed off as Samsara flats.

Punters: This would be a great play in the short-term say between 1-3m for punters when Alembic recognizes flat sales revenues and the bottom line catapults from loss to remarkable profit

Disclaimer:

I am too conservative to be attracted to such opportunities. I have zero exposure to Alembic pair of companies and do not plan to invest in them any time soon.