by Suhani Adilabadkar
Mumbai-headquartered Alkem Laboratories manufactures and sells pharmaceutical generics, formulations and nutraceuticals in India. It manufactures a range of well known brands including Taxim, Clavam, Pan D, Onem and A To Z, and is the domestic market leader of anti-infectives.
Quick Takes:
- Alkem Laboratories (which is in 14 stock screeners including high EPS growth) has built a reputation as the best anti-infective company in India over the last 15 years
- Q2FY20 reported Revenue and PAT growing at 11.5% and 36% YoY respectively
- Alkem has incurred about 1.9 bn capex over the last three years and is looking forward to a target of planned out Rs.400-450 cr for FY20
- Baddi plant in Himachal Pradesh and St. Louis (US) received a clean chit by USFDA during the inspection.
- All the facilities of Alkem have received a clearance during the inspection except for the Daman facility that received a Form 483 with two observations in August 2019.
- The management aims to achieve EBDITA margin of 18% by FY21, and commits to industry outperformance of 200 bps.
Alkem made its stock market debut in 2015, with its issue getting oversubscribed by 44 times raising Rs.1350 cr. The stock has lost 10% YoY, but is on relatively better footing compared to Pharma biggies like Cipla, Sun Pharma, Lupin, Aurobindo Pharma, and Biocon which have lost share price in the range of 20-60% over the past one year. After a lacklustre performance in FY18, Alkem is back in the good books of analysts and under investor radar as favoured long-term pick.
Profile
Alkem is the 5th largest company in its space in terms of market share. Alkem boasts a comprehensive portfolio of over 800 brands, 21 manufacturing facilities (six USFDA approved), 5 R&D centres in India and the US, and a growing presence in more than 50 international markets, including key overseas markets in the US, Australia, Chile, Philippines, Middle East and East Africa.
A steady June quarter
Alkem Laboratories has been growing steadily in the June quarter of FY20 with Revenue and Profit After Tax (PAT) growing at 11.5% and 36% YoY respectively. Revenue stood at Rs.1850 cr compared to Rs.1659 cr last year.
Domestic sales growth was 12% YoY at Rs.1222 cr whereas international business grew 8% YoY reported at Rs.591 cr in June quarter FY20. PAT or Net Profit was reported at Rs.187 cr against Rs.137 cr corresponding to the previous year’s quarter, rising 36% YoY and 10% sequentially supported by strong cost optimization efforts and lower effective tax rate during the quarter. EBDITA witnessed a 30% growth YoY at Rs.265 cr against Rs.204 cr last year with margin of 14.3%, expanding 200 bps YoY. R&D expenditure was around 5.6% of Revenue while the company filed 2 ANDAs and received 5 ANDA approvals (including 2 tentative) from the USFDA in Q1FY20.
Management commits to consistent outperformance
After falling to its 52-week low in June 2019, Alkem seems to be gearing up with its stock price gaining 10% since the announcement of its Q2 results. Analysts are bullish about Alkem since it’s also on the buy list of prominent AMCs.
Due to the balance maintained in FY19 amidst the FDC ban, weak anti-infective season and increase in the holding of FIIs and DIIS by 200 bps, analysts and mutual fund houses have favoured the stock.
The company’s India business has reported a CAGR of 16% over the past four years. It also contributes nearly 67% of total revenues with US sales constituting roughly one-fourth of the entire revenue basket, giving a strong stable revenue mix compared to pharma competitors like Sun Pharma, Lupin, Dr Reddy’s and Auro Pharma.
Alkem is significantly ahead of industry growth in well-established therapeutic areas such as Anti-infectives, with a growth of 22% YoY against industry’s 10%; Gastro-intestinal growth at 18% v/s 9% and Vitamins & Minerals category at 24% YoY against 12% for the rest of the industry. Apart from these acute therapies, the company is also gaining a foothold in chronic segments like Anti-diabetic, Cardiac and Nero growing reasonably at 36%, 27% and 14% YoY against pharma industry’s growth of 12%, 11% and 9% respectively in Q2FY20. The Managing Director of Alkem Laboratories, Mr. Sandeep Singh said, “We always maintain that we will outperform the industry by, let us say, 200 basis points. So, I think that will continue, and there is no reason for us to change that guidance”.
Talking about specific products, Taxim rules the market with nearly 77% share in Anti Infective (AI) category. Pan and Ondem in Gastrointestinal segment occupies nearly 30% of market share each while Clavam and Pipzo comprise market share of 16% and 18% respectively in FY19 and Tiger Balm with 50% domination in the OTC analgesic market.
With a footprint in the domestic market, Alkem is also deepening its position in the US business with a CAGR of 28% since four years. The US market has been on the positive side with a growth of 14% YoY for Q2 ahead of domestic growth. In this respect Mr. Singh added, “The growth in the U.S. business was mainly on the back of new product launches and scale up in the existing products”. Compared to its competition, Alkem entered the US market late in 2010 by acquiring ThePharmanetwork, the holding company of Ascend. It reached its break-even point in FY16 and since then saw success with strong product launches such as Mycophenolate (immunosuppressant drug) which has a 15% market share and g-Suprax (bacterial infections), g-Ampyra (multiple sclerosis) with opportunistic market size of $20 Mn and $40 Mn respectively.
Most recently, Valsartan (hypertension) has been launched in March FY19, which started contributing from Q2FY20. Alkem has a strong ANDA pipeline of 127 ANDAs as on 31st March, 2019 already filed with the USFDA, with over half of them yet to be commercialised providing strong impetus for US Business.
Mr. Sandeep Singh clarified on Biosimilars, “I think next year, around, Q2, we would be launching one or two products in India. So, first, we want to launch products in India and then take to emerging markets. So, as you know, biotech is a long-term plan”. The management aims to achieve EBDITA margin of 18% by FY21. With all these growth levers in place, Alkem is definitely ready to scale the next frontier of growth.