MOSL: ALKEM LABORATORIES (Buy)-FY19 an aberration, but outlook remains promising
Alkem Laboratories: FY19 an aberration, but outlook remains promising; New launches in the US, superior execution in India to aid earnings growth
(ALKEM IN, Mkt Cap USD3b, CMP INR1772, TP INR2170, 22% Upside, Buy)
- The price correction of the past six months provides a good buying opportunity in Alkem Labs (ALKEM), in our view. With compliance in place and ANDA filings/approvals proceeding at a healthy rate, we expect ALKEM to post revenue CAGR of 16% over FY19-21E and improve profitability from US generics.
- We believe its domestic formulation (DF) segment is in a good position to deliver 14% CAGR over FY19-21E due to (a) higher number of MRs focusing on chronic therapies, (b) adjustment of few products’ base business for the FDC ban, and (c) the ongoing momentum in trade generics.
- We reduce ALKEM’s P/E multiple from 24x to 22x (12M forward basis) to factor in US generics’ headwinds and the gradual growth downtrend in the DF industry growth. Accordingly, we arrive at PT of INR2,170.
- Alkem’s 9MFY19 performance was subdued (3% YoY decline in earnings) due to the course correction and weak season in the DF business. However, we remain positive on ALKEM due to its superior execution in domestic and US generics, thereby driving 23% earnings CAGR over FY19-21E. Re-iterate BUY.
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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