IGI Logo

Steady performer on growth, margin

Result Synopsis

Alkem reported an all-round beat with US business springing a surprise on back of better seasonal trends in anti-infectives. India business performed largely in line with 10% YoY while ROW markets sustained their momentum YoY. OPM benefited from less of price erosion impact in US as also deferment of expenses to Q4. Company expects US business to return to Q2 kind of range as Q3 is clearly an aberration. Domestic business is largely firing on all cylinders barring may be cardiac where a course correction from niche (anti-coagulants) to mainstream products might be necessary. While Q3 saw branded business grow at double the pace of trade generics, expect the later to inch up and close the gap with branded growth. Input costs have come off from elevated level seen in Q2, albeit recent rise in Pen G and anti-infective prices needs close watch as they start to increase again. Overall, neither domestic or US business is likely to see any change in growth trajectory in Q4 or broadly FY24. Sharp jump in US sales in Q3 warrants tweak to FY23 and FY24 estimates along with introduction of FY25 forecasts. We roll over to FY25 valuation and also lower target multiple to 22x (from 25x earlier) to create some gap with other chronic plays like Ajanta (being valued at 25x). Believe steady upside would unfold as company delivers on FY24 margin in a back ended return profile. ADD stays for a revised TP Rs3,750 (earlier Rs3,500) Triggers remain in place for gradual improvement in margin from better chronic productivity and less likelihood of sharp jump in operating expenses

Result Highlights

Alkem reported an all round beat in Q3 with revenues up 16% YoY and sequential decline restricted to just 1% (despite traditionally weak domestic seasonality)

US was the source of surprise with sales up 26% QoQ on a relatively weakish base (Q3 FY22 marked first quarter of sharp double digit price erosion) – Alkem had approvals for Vancomycin HCL and Lurasidone – would get more colour in the call on underlying reason for sharp jump QoQ

India business up 10% YoY and in line with expectation and aided by less stark seasonality as seen from Q2 to Q3 historically

Gross margin up 130bps QoQ while OPM benefited from strong US traction though flat YoY

PAT up 32% QoQ on margin jump of ~500bps on sequential basis

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer