MOSL: ALKEM LABORATORIES (Buy)-Domestic Formulation/non-US segment drives earnings growth
ALKEM LABORATORIES: Domestic Formulation/non-US segment drives earnings growth
(ALKEM IN, Mkt Cap USD5.7b, CMP INR3551, TP INR4150, 17% Upside, Buy)
Posts market beating growth in Acute/Chronic therapies in the DF segment
- ALKEM delivered an in line 2QFY22 earnings, led by a strong showing in the Domestic Formulations (DF) segment, but excluding the international US segment. Like its peers, ALKEM also exhibited subdued performance in the US segment, impacted by high single-digit price erosion in the base business.
- We lower our FY22E/FY23E earnings estimate by 3% each to factor in: a) increased raw material/Logistics costs, b) ongoing pricing pressure in the US Generics portfolio, and c) operational cost normalizing to pre-COVID levels in the Domestic Formulation segment. We value ALKEM at 24x 12-month forward earnings to arrive at our TP of INR4,150. We remain positive given its: a) superior execution in Acute and Chronic therapies in DF, b) leadership position in Trade Generics, and c) new introductions, including Biosimilars. We reiterate our Buy
Superior product mix benefit outweighed by lower operating leverage
- Revenue grew 19% YoY to INR28b (est. INR27.5b) in 2QFY22.
- The domestic business grew 26% YoY to INR19.6b (71% of sales). International sales, excluding the US, grew 28% YoY to INR2b (7% of sales), while US sales fell 2.6% YoY to INR6.1b (22% of sales).
- Gross margin rose ~170bp YoY to 62.2% due to a higher share of the India business.
- EBITDA margin contracted by ~310bp YoY to 22.3% (est. 22.4%) due to higher other expenses/staff cost (+530bp/+40bp as a percentage of sales), but was partially offset by lower R&D costs (-90bp as a percentage of sales).
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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