MOSL: ALKEM LABORATORIES (Buy)-Strong numbers-operating leverage impact visible
Alkem Laboratories: Strong numbers; operating leverage impact visible
(alkem IN, Mkt Cap USD4.1b, CMP INR2182, TP INR2500, 15% Upside, Buy)
- Revenue grew 17% YoY to INR17.4b (est. of INR16.7b) in 3QFY18. EBITDA came in at INR3.6b, with the margin at ~20.7% (est. of ~20%). This is despite higher other expense (+410bp QoQ) due to higher promotional charges related to the OTC business and doctors’ conferences. R&D expense stood at INR927m (or 5.3% of sales). PAT was at INR1.7b, lower than our estimate of INR2.4b due to a higher tax rate. Tax rate includes one-time charge of ~INR448m related to the change in US tax laws.
- Strong domestic business growth; expect growth to accelerate further in 2H: Alkem’s domestic business grew by a robust 22% YoY to INR12.6b, led by strong inherent growth, a lower base and channel refilling. The company is expanding its presence in the domestic business via new product launches and expansion into new therapies. We expect this strong growth momentum to continue for at least two more quarters, led by a lower base (related to demonetization and GST impact).
- US business: Two thirds of pending portfolio to get approval in next 24 months: US sales came in at ~USD55m (up 18% QoQ). Sequential increase in US sales can be attributed to a seasonally strong quarter for Benzonatate and the launch of Nexium and Prasugrel. US business margins will continue improving on the back of operating leverage, as ~30 ANDA approvals are expected for Alkem in the next 24 months.
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.
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