MOSL: ALKEM LABORATORIES (Buy)-Strong US growth-key DF biz suffers
Alkem Laboratories: Strong US growth; key DF biz suffers
(ALKEM IN, Mkt Cap USD3.2b, CMP INR1900, TP INR2365, 24% Upside, Buy)
- Profitability impacted by lower gross margin: Revenue grew 10% YoY to INR19.3b (our estimate: INR18.9b) in 3QFY19, led by strong 44% YoY growth in the US business (27% of sales). This, however, was partly offset by de-growth of 1% YoY in the domestic formulation business (DF; 66% of sales). Growth in the US was driven by healthy traction in the existing portfolio, new launches and the favorable currency impact. DF business was impacted by (a) FDC ban on select products, (b) the relatively weak season for anti-infective medicines, (c) slower trade generics business and (d) the high base (GST-led normalization in 3QFY18).
- Gross margin shrank sharply by ~700bp YoY (-300bp QoQ) to ~57% due to (a) increased imported RM prices and (b) higher share of relatively low-margin US business. EBITDA margin contracted at a lower rate of ~450bp YoY (-280bp QoQ) to 16.2% due to lower other expenses (-330bp YoY). R&D spend stood at INR1.2b, accounting for 6.2% of sales. Absolute EBITDA declined ~13% YoY to INR3.1b (our estimate: INR3.4b). PAT declined at a lower rate of ~6% YoY to INR2b (our estimate: INR2.4b), as the tax rate was higher in the year-ago period.
- For 9MFY19, sales stood at INR55.1b (+13% YoY), EBITDA at INR8.9b (-3% YoY) and PAT at INR5.9b (-3% YoY).
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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