Add Alkem Laboratories, target price Rs 6,180: HDFC Securities

HDFC Securities has an add call on Alkem Laboratories Ltd. with a target price of Rs 6,180. The current market price of Alkem Laboratories Ltd. is Rs 5535. Alkem Laboratories Ltd., incorporated in 1973, is a Large Cap company with a market cap of Rs 66265.31 Crore) operating in Pharmaceuticals sector.

Alkem Laboratories' key products/revenue segments include Pharmaceuticals, Other Operating Revenue, Export Incentives and Scrap for the year ending 31-Mar-2024.



Financials
For the quarter ended 30-09-2024, the company has reported a Consolidated Total Income of Rs 3549.15 crore, up 12.60% from last quarter Total Income of Rs 3152.13 crore and up 1.31% from last year same quarter Total Income of Rs 3503.36 crore. The company has reported net profit after tax of Rs 701.96 crore in the latest quarter.

Investment Rationale
Alkem Laboratories' EBITDA (+1% YoY) is below consensus estimates due to 1% YoY sales decline (+6% YoY India, -7% QoQ in the US), which was offset by higher gross margin (+330 bps YoY) and cost controls (staff/SG&A +10%/+1%YoY).Alkem guidance (1) lowered overall revenue growth to mid-single digit in FY25 vs.~10% earlier, (2) India business to see growth at par with the IPM growth of 8-9% in FY25 as it expects strong growth H2FY25 (~6% YoY in H1), (3) the company raises EBITDA margin guidance to 18.5-19% in FY25 (~18-18.5% earlier), (4) it expects gross margin expansion led by lower input costs and improved product mix, and (5) mid-single-digit decline in the US (-16% YoY in H1; earlier guided for single-digit growth) in FY25; it hopes to improve growth in H2 on visibility of few new launches (one CGT exclusivity launch).

The company expects to monetize its biosimilar (in next 2-3 years) and Medtech (from H1FY26). Factoring Q2, HDFC Securities has tweaked its EPS for FY25/26E and rolled forward the target price to Rs 6,180 (28x Q3FY27E EPS). The ADD call stays, as the brokerage believes Alkem will see steady growth, led by a recovery in the acute segment (in FY26), scale-up in the chronic (new launches), and steady growth in trade generics as well as US business to see recovery from FY26. This is coupled with an improvement in EBITDA margin, led by improved GM, increasing chronic share, and cost controls.

Promoter/FII Holdings
Promoters held 55.66 per cent stake in the company as of 30-Sep-2024, while FIIs owned 9.02 per cent, DIIs 19.21 per cent.