Alkem Laboratories Ltd. share price target

Alkem Labs posted a solid Q1 EBITDA beat led partly by one-offs.

We remain positive on ALKEM due to robust ANDA pipeline/minimal regulatory risk in the US and 4QFY20 revenues grew 10.6% YoY to INR20.5b (v/s est. We expect 15% earnings CAGR over FY20-22E, led by 16%/10% sales CAGR in the US/DF generics on new launches and better traction in existing The reduced promotional expense in DF and improving profitability in the US should drive 220bp margin expansion over FY20-22E. Based on product pipeline and minimal regulatory risk in the US, we expect ALKEMs US sales to deliver 16% CAGR at ~USD420m over We cut our EPS estimates by 6%/4% for FY21/FY22E to factor in the weakness in DF segment over the near term. We expect 15% earnings CAGR over FY20-22E, led by 16%/10% sales CAGR in the US/DF generics on new launches and better traction in existing products.

Revenues (Rs 20bn, up 10% YoY) came in line with estimates as exports led the growth (India grew 3% YoY), gross margins at 56.3% (down 540bps QoQ and 180bps YoY) was impacted due to product mix (higher contribution from trade generics and competition in Mycophenolate in the US) coupled with higher API prices from China. Despite poor gross margins, lower fixed costs and employee expenses (15% cost is variable) led to EBITDA margins at 14.8% (up 210bps...

Alkem Labs reported in-line Q4 EBITDA; margins were a tad miss at 14.8% as the negative gross margin was offset by lower staff cost.

INFOE: On a slippery slope initiate with SELL. Monthly Eco Chartbook: RBI's rate cut to support growth. Inflation and IIP: Inflation falls, growth rebounds. Balance of Payments: Favourable outlook on CAD

DRRD, LPC, Sun & Alkem to report strong quarters both for US and India.

Alkem Laboratories, established in 1973, is 5th largest pharma company in India by domestic sales. The company is leader in the acute therapies and has also invested in the chronic therapies. Alkem's US business grew at 24% CAGR over FY16-19 when its large peers struggled for growth. The company faced earning challenges over FY17-19 due to the macro events, weak seasonality, distributor restructuring, API price inflation and FDC ban. FY20E however is proving to be favorable for earnings with strong acute season and continued growth in the US business. With strong domestic business, continued growth in the US business and already completed capex, we believe Alkem has better earnings visibility. The potential...

With a lower than expected impact of gMycophenolate competition in the US, coupled with the highest top-line growth in India business among large-cap peers (1QFY20), we maintain our FY20/21E revenue estimates for Alkem and model a 13% CAGR over FY19-21E. The profitability, too, is likely to expand by 100-120bps YoY with lower raw material prices and improving business mix. With moderated tax expectations, we model 25% EPS CAGR over FY19-21E. Alkem remains among the fastest-growing companies in the Indian market while its performance in the US also stands out. At CMP, Alkem is available at 18x FY21E EPS. Considering its stable branded business, healthy cashflows (~Rs 8bn annual FCFF over FY20/21E), and reasonable return ratios (22% RoIC in FY21E), we believe this is unjustified. We maintain BUY on ALKEM despite a big miss on our 1QFY20 estimates. Our TP is 2,180 (22x FY21E EPS) with estimates largely unchanged owing to a sharp recovery expected in the next two quarters following a shift in the seasonally strong quarters (from 1Q earlier to 2Q now).

Alkem Labs reported a good Q1FY20 with an 11% EBITDA beat owing to gross margin expansion and better cost control.

We remain positive on the medium to long-term growth prospects of Alkem on the back of stable revenue growth from high-margin domestic business (outpace IPM growth). However, EBITDA margin is expected to reel under pressure in FY20E/FY21E owing to robust growth in low-margin US business (last 6 quarters average growth at 36%+ YoY) and large number of field force addition (2,000 added in FY17-19 and 1,000 in 1QFY20). At CMP, the stock trades at a PE of 23.7x and 20.3x of FY20E and FY21E earnings, respectively. As we expect the stock to command premium over its peers owing to healthy return ratios and higher exposure to India business, we maintain...