Buy Alkem Laboratories Ltd For Target Rs.2,930 - Yes Securities
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Q3 FY21 call highlights
* Healthy traction in chronic and market share growth in acute seen as sustainable trends
* Marketing cost optimization to offset natural rebound in expenses as domestic sales revive from in FY22
* Raise FY21 estimates by 6% on better than expected Q3 margin which effectively defers costs to FY22 leaving EPS for FY22/23 largely unchanged
* Believe stock trading at attractive 18x FY23 EPS; BUY stays on unchanged target PE of 22x FY23 EPS, at a moderate discount to chronic plays like Ajanta Pharma
Guidance
* Maintains guidance of 200bps margin expansion (in FY19 margin was around 17.5% and the management expects margin expansion from the FY19 number).
* Gross margin will be in 60‐62% range
* US business is expected to grow at around 15% for next year.
* Confident of filing 12‐15 ANDA and launch 8‐10 products every year.
* Trade generics has outperformed the branded business in Q3; next year share to decline
* India business registered growth due to growth in chronic segment.
* Marketing cost optimization to continue
* Capex for 9MFY21E‐ Rs1.3 bn.
* Indore facility is awaiting inspections from the USFDA.
* Gained market share in big brands and going forward will be looking to re‐structure in the acute segment in the next fiscal year.
* Other income is higher due to sale of asset and asset monetization (sale of brand to Abbott).
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