Alkem Laboratories Ltd. share price target

Alkem Labs is a midsized pharma company (US$ 1bn sales) with India and the US as key markets. It is the market leader in several key acute segments in India. We believe a recovery in Alkem's India business profitability and rising US operating leverage would revive earnings to a 22% CAGR over FY19-FY21 (after a weak FY17-FY19). Post 40% underperformance to the Sensex in the last two years, the stock is trading at 12.3x FY21E EV/EBITDA, implying compelling risk-reward....

Despite reporting subdued performance in FY19, we remain optimistic over Alkem as we believe the impact of raw material price hikes will alleviate in FY20E, and the domestic business is likely to recover on a softer base of FY19. We expect Alkem to return to normal business margins of 16-16.5% in FY20E. Although it is unlikely to repeat its US performance (+39% YoY) next year due to incremental competition, we do believe a 10%+ YoY growth is achievable owing to 8-10 yearly launches. With the expectation of 14/26% revenue/earnings CAGR, Alkem is available at ~17x FY21E EPS. Considering the stable branded business, healthy cashflows and reasonable return ratios, we believe this is unjustified. We maintain BUY on ALKEM following a big beat to our estimates. Our target price is at Rs 2,250 (22x FY21E EPS).

period due to changes in the distribution policy, adjusting for which domestic sales growth was in early teens. US business sales were up 19% YoY at INR4.8b. Other international business sales grew 20% YoY to INR1.2b. Margins supported by lower operating cost: Gross margin shrank 300bp YoY to 58.2% on account of product mix change (competition intensified for high-margin products). However, the EBITDA margin expanded 400bp YoY to 12.8% due to lower other expenses (-580bp YoY)/employee cost (-120bp YoY). EBITDA was up 81% YoY at INR2.3b due to high revenue growth and...

We initiate with a BUY for a price target of Rs. 2,306 representing an

26 March 2019 ALKEM has ramped up its US sales to 6x over FY13-18 on new launches, reasonable market share gains in existing products, and partly on low base. For 9MFY19, ALKEM delivered strong 34% YoY growth to ~USD200m. We expect growth in ALKEMs US business to remain intact despite competition in one of its key products; newer approvals should offset the decline in base business and aid growth in the US generics segment. We expect the base effect to smoothen out and ALKEM to be back on track with aggressive growth in its chronic portfolio and on major therapies in the acute category, thereby aiding 14% revenue CAGR over FY19-21E. Based on 23% earnings CAGR expected over FY19-21E and led by healthy performance in the DF segment, enhanced margins in the US generics business, and attractive on the stock. For 9MFY19, US sales stood at USD200m and saw 34% YoY growth.

Maintain BUY with a revised TP of Rs 2,340 (22x Dec-20E EPS). Alkems 3QFY19 performance was in line with our expectations. A softer acute season led to a 1% fall in the domestic business, while the 44% jump in the US helped in maintaining 10% plus YoY top line growth. Poor business mix (lower India sales) and increased raw material cost led to a ~680bps drop in gross margin. As a result, EBITDA margin shrunk 450bps YoY and EBITDA declined 13% to Rs 3.1bn. Reported PAT at Rs 2.1bn was up 14% YoY owing to higher taxes in 3QFY18

Maintain BUY with a TP of Rs 2,415 (22x Sep'20E EPS). Alkems 2QFY19 performance was ahead of expectation with EBITDA margin improving 614bps QoQ to 19% (100bps beat) and PAT coming in at Rs 2.6bn, down 19%YoY (16% beat). Revenues grew 3%YoY to Rs 19bn, in line with our estimates. Within segments, India business declined 6%YoY on a high base due to post-GST restocking last year, while US revenues grew 55%YoY to Rs 4.7bn, on the back of new product launches and currency tailwinds.

Alkem Laboratories Ltd Q2FY19 results Comment Revenue rose by 14.94% to Rs. 1918.92 Cr in Q2FY19 when compared to the previous quarter. Also, it rose by 3.22% when compared with Q2FY18.

2 November 2018 muted growth of 3%YoY to INR19.2b (v/s est. of INR17.5b) on back of 6% YoY decline in domestic formulation (DF, 69% of sales), which was off-set by strong 55% YoY growth in the US business (25% of sales). Gross margins declined by ~180bp YoY (flat QoQ) to ~60.2% due to increased share of relatively low margin US business. Increased other expenses and employee cost (up ~270bp and ~60bp, as percentage of sales) led to contraction of ~570bp YoY in EBITDA margin to 19% (our est. Sequentially, EBITDA margin has expanded ~610bp due to improved operating leverage. R&D; spend was INR1.1b, 5.5% of sales v/s 5.9% of sales in 1QFY19. PAT declined by ~21% YoY to INR2.

ff US FDA: Alkem is yet to receive The US FDA clearance for St. Louis facility. However, it has already received EIR for Daman unit (inspected in Mar'18), while the US FDA inspected its Baddi plant between 6-10th Aug-18 with zero observations....