Alkem Laboratories Research Report by Angel Broking
Slower growth in domestic and US business: Alkem reported yoy revenue grew of 9% in 4QFY17. Domestic revenue grew by 7% yoy to `856cr while exports grew by 14.5% to `385cr. US revenue grew by 19.4% yoy to `291cr. Other exports were flat at `95cr. Domestic business contributed 69% of the total revenue during the quarter. Exports mix remains unchanged (vs. 3QFY17), with US contribution remaining at 23% of total revenues in 4QFY17. Gross margins declined by ~35bps on qoq basis but improved by 67bps on yoy basis. EBITDA declined by 4.2% yoy at `149cr vs. `156r in 4QFY16. EBITDA margins were at 11.9% vs. 13.6% in 4QFY16 and 18.1% in 3QFY17. The decline in EBITDA margins was largely on account of higher employee cost and increased R&D expenditure. PAT was at `137cr in 4QFY17 showing a yoy growth of 58.6%, due to the lower tax in the quarter.
Outlook and valuation: The stock at the CMP of `1,868 is available at P/E of 18.6x of FY19E EPS of `101. We have cut our EPS estimates by ~5% due to the recent slowdown in domestic business, likely disruption in the pharma industry due to higher GST and pricing pressure in the US. We expect company to report CAGR of 15.8% and 15.3% in top line and bottom line respectively in next two years. The company is expected to witness improvement in its return ratios owing to the rising profitability of US business. Moreover Alkem’s all manufacturing facilities are current with USFDA which gives confidence that company will deliver strong results over next two years. Considering these factors, we rate Alkem BUY with price target of Rs 2,161 based on 21.5x of FY19E EPS.
Alkem reported revenue grew of 9% yoy. Domestic revenue grew by 7% yoy to `856cr while exports grew by 14.5% to `385cr.
In the therapeutic segments, company grew by 4.7% in the quarter underperforming industry growth of 6.6%. Main reason behind this is negative growth rate that company clocked in Anti-infective and respiratory segments.
US revenue was at `291cr vs. `243cr in 4QFY16. US revenue growth was at 19.4% yoy, slower than our expectations. Other exports were flat on yoy basis to `95cr in 4QFY17. Company continues to focus on the US market which is clearly reflected in the numbers.
The company continues to maintain its market share in the Anti-infective, GI and pain management segments. In the acute segment, company has mainly put a subdued performance, however in the chronic segment; company has gained market share, especially in derma, cardiac and anti-diabetic segments. Domestic business contributed 69% of the total revenue while exports contributed the rest.
Export mix remains unchanged with US contribution at 23% in 4QFY17 vs.23.2% in 3QFY17. On yoy basis, this contribution has grown by 200bps.
Gross margins improved by~67bps on yoy basis but declined by 35bps on qoq basis.
Staff costs was at `229cr, showing a yoy increase of 19.3%. As % of net sales, staff cost was at 18.3% in the quarter vs. 16.7% in 4QFY16 and 18.3% in 3QFY17.
EBITDA came in at `149cr vs. `156cr in 4QFY16 showing a yoy decline of 4.2%.
EBITDA margins at 11.9% in the quarter declined by ~164bps on yoy basis and by ~616bps on qoq basis, mainly due to higher R&D and staff costs as mentioned above.
Net profit grew by 58.6% yoy from `87cr in 4QFY16 to `137cr in 4QFY17. This was due to lower tax rate in the quarter.
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