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Alkem Sees Slowdown; Margins Hit by Rising R&D

While Q4 is generally a weak quarter for the company, Alkem has seen a significant hit to its EBITDA margins due to higher operating expenses and profitability due to increased depreciation following the acquisition of Adroit Biomed. Although the company expects some operational leverage to materialize from the acquisition, rising R&D expenses for pipeline development will continue to weigh on EBITDA margins, which we expect to remain largely unchanged. With no major drug launches scheduled in the US for FY26E/FY27E, coupled with a general slowdown in the domestic market, we forecast Alkem to report a high single-digit overall revenue growth. Accordingly, we revise our FY27E estimates downward by 3.3% and continue to value the company on FY27E EPS at a PE multiple of 20x (unchanged), resulting in a target price of INR 4,100 (previously INR 4,186). We maintain our SELL rating on the stock.

Weak Operating Performance, Largely Miss Across Metrics

* Revenue grew 7.1% YoY / declined 6.8% QoQ to INR 31.4 Bn (vs. consensus estimate: INR 31.7 Bn).

* EBITDA de-grew 2.7% YoY / fell 48.5% QoQ to INR 3.9 Bn (vs. consensus: INR 4.4 Bn); margins contracted 125 bps YoY / 1006 bps QoQ to 12.4% (vs. consensus: 13.9%).

* PAT was flat YoY / declined 51.1% QoQ to INR 3.1 Bn (vs. consensus estimate: INR 3.6 Bn).

India Growth Slows Amid NLEM Pressure, Weak Acute Momentum: The India business, which contributes ~70% of total revenue, has seen a slowdown over the past two quarters. Around 30% of the company's portfolio falls under the National List of Essential Medicines (NLEM), subject to strict price caps. Volume growth in these products has been muted at ~1% versus the ~2% expected. Additionally, the company has witnessed slower momentum in its acute therapies segment, which makes up ~80% of domestic revenue. While the company aims to continue outperforming the Indian Pharmaceutical Market (IPM) by 100 bps, the broader IPM is expected to grow only 8–9% in the coming year. We believe this will lead to a relatively modest overall revenue growth for the company

EBITDA Margin to Hold at 19.5% Through FY27E Amid Rising R&D Spend: Although the company’s gross and EBITDA margin improved in FY25, they are expected to remain largely stable over the next two years. Gross margin could see a modest 50 bps uptick due to an improved product mix, and some operating leverage is anticipated. However, this will likely be offset by increased R&D expenses, guided at 5% of revenue (vs. 4.3% in FY25), as the company ramps up its pipeline with multiple filings — including 8–10 for the US and several for non-US markets. With no major launches expected in the near term, we expect EBITDA margins to remain flat at 19.5% through FY27E, consistent with management guidance.

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