MOSL: ALKEM LABORATORIES (Neutral)-Weak 1Q due to GST impact-recovery expected in coming quarters
Alkem Laboratories: Weak 1Q due to GST impact; recovery expected in coming quarters
(ALKEM IN, Mkt Cap USD4.1b, CMP INR1707, TP INR1830, 7% Upside, Neutral)
- Revenue declined 12.5% YoY to INR12.9b (17% miss). Adjusted for accounting treatment of excise duty cost of INR520m, gross margin remained flat. EBITDA stood at INR944m, with the margin of ~7% coming in significantly below our estimate due to poor performance in the domestic business (-21% YoY). R&D expense stood at INR701m (5.4% of sales). PAT was at INR638m v/s INR2.4b in 1QFY17.
- Weak domestic business growth; recovery expected in coming quarters: Alkem’s domestic business declined 21% YoY to INR8.7b. The company lost almost one month of sales due to destocking in the channel prior to GST implementation. Given that 1H is seasonally strong, if full recovery of sales does not happen by 2Q-end, then company may lose some sales in FY18. Full-year growth guidance for the domestic business has been brought down to low-double-digits from mid-teens earlier.
- US – continues to grow at steady pace: US sales came in at USD45m (up ~12.5% YoY). We expect ramp-up in the US business in the coming quarters, led by the expected launch of 8-10 products in FY18. Also, 2H is seasonally strong for Alkem due to products like Benzonatate.
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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