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Alkem reported revenue below our estimations, however earnings were above our estimate. Revenue increased marginally by 2.2% YoY and 3.3% QoQ to INR 30,318mn. EBITDA at INR 6,086mn saw a good growth of 56.4% YoY and 51.4% QoQ. Margins expanded by 696bps YoY and 638bps QoQ to 20.1%. Adj. PAT saw a robust growth of 88.1% YoY and 77.4% QoQ at INR 5,393mn. The company expects to grow top-line inline with the industry growth of 10%, majorly driven by the domestic market.

* India Business: The India business grew by 6.4% YoY and 2.5% QoQ to INR 20,223 mn, accounting for c.67% of total revenue. The company outperformed the IPM in antidiabetic, Neuro/CNS, gastrointestinal, dermatology, and VMN therapies, with an improved ranking in Neuro/CNS and Respiratory therapies. During the quarter, the company launched three new products in the domestic market.

* North America: The US business experienced a YoY decline of 7.7% but saw a slight sequential growth of 2.8% to INR 6,416 mn, accounting for approximately 21.2% of total revenue. In Q1FY25, the company launched one product in the US and received approval for three ANDAs from the USFDA, including one tentative approval. Additionally, it expects to file 8-10 applications in FY25, with most filings anticipated in the second half of the year. The US generics segment continues to face single-digit price erosion. By the end of FY25, the new US facility focused on the CDMO sector for biosimilars is expected to become operational.

* Margin Profile: The gross margin improved significantly by 490bps YoY and 223bps QoQ, reaching 64.5%. EBITDA margin also saw a strong expansion, rising by 696bps YoY and 638bps QoQ to 20.1%. The company remains focused on maximizing EBITDA margin by strategically managing its product mix, controlling costs, and leveraging a favorable raw material pricing environment. Management anticipates gross margins of 62.5% for FY25. However, the anti-infective portfolio, which peaks during Q2 and Q3, may alter the product mix and impact margins by up to 2%. Despite this, overall EBITDA margin guidance is maintained at 18%.

* Outlook and Valuation: Alkem's growth will primarily be driven by its India business, supported by volume expansion and new launches in the US. However, EBITDA margins are expected to remain largely in line with the current year. The company is actively seeking M&A opportunities, with a focus on chronic over acute therapies. The expected CAGR for Revenue, EBITDA, and PAT is 10.7%, 22.7%, and 36.8%, respectively, for FY23-26E. We value the stock based on FY26E EPS, arriving at a target price of INR 6,234 (valued at 29x) and assign a BUY rating.

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