MOSL: ALKEM LABORATIES (Buy)-DF and US business lead strong earnings growth
Alkem Laboraties: DF and US business lead strong earnings growth
(ALKEM IN, Mkt Cap USD4.2b, CMP INR2505, TP INR2950, 18% Upside, Buy)
DF on robust growth path; US profitability to gradually improve
- Alkem is one of the companies with higher exposure (two-third of the business) to domestic formulation (DF), which is a strong industry outperformer. It has lower exposure to US generics (~25%), which is driven by new launches. Further, Alkem has delivered 34% EBITDA growth for 9MFY20, led by 14% revenue growth, superior product mix and better operating leverage.
- We raise our EPS estimates by 5%/8%/8% for FY20/FY21/FY22E and raise P/E multiple to 22x (from 20x earlier) to factor in (a) Alkem's superior execution across Acute/Chronic segments in DF, and (b) better traction with minimal regulatory risk in the US generics segment. Maintain Buy.
Superior growth leads better than estimated earnings
- 3QFY20 revenues grew ~13% YoY to INR21.8b (v/s est. INR20.8b), led by robust YoY growth in DF sales.
- Domestic business grew ~14.2% YoY to INR14.2b (66.3% of sales) due to strong sales of anti-infective, which increased >1.5x the industry therapy growth rate.
- International business reported growth of ~11% YoY to INR7.3b.
- US business was up 12.6% YoY to INR5.8b (27.2% of sales).
- Gross margin expanded ~320bp YoY to 61.8% due to better product mix.
- EBITDA margin improved ~450bp YoY to 20.8% (v/s est. 19.2%), mainly due to improved GMs and lower R&D costs (-70bp YoY as % of sales).
- R&D expense stood at INR1.2b, 5.5% of sales for the quarter.
- EBITDA improved 44.8% YoY to INR4.5b (v/s est. INR4b).
- The company has tax adjustment of earlier periods to the tune of INR353m for the quarter.
Alkem Laboratories Limited is a pharmaceutical company. The Company is engaged in the development, manufacture and sale of pharmaceutical and neutraceutical products. The Company operates through two segments: pharmaceutical and investing. The Company produces generics, generic drugs, active pharmaceutical ingredients (APIs) and neutraceuticals, which it markets in India and approximately 50 countries internationally, primarily the United States. The Company offers various products, such as CLAVAM 375, CLAVAM BID DRY SYRUP, CLAVAM INJ 300MG, FREEAIR NASAL SPRAY, PAN 40MG INJECTION (VIAL), PAN/40MG TABLETS, PROWEL DRY SYRUP (30ML), TAXCLAV 100 DT TABLETS, SATROGYL O DRY SYRUP, XONE/500MG VAIL, MEROSURE KIT 500, MEROSURE 500 MG and ZADONASE, among others. The Company has approximately 16 manufacturing facilities, of which 14 manufacturing facilities are at geographically diversified locations in India and two in the United States.
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