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Reliance Securities
Alkem Laboratories (Buy)
CMP: ₹1,768
Target: ₹2,050
We expect ALKEM’s domestic formulations business (67 per cent of sales) to clock 12 per cent CAGR through FY19-21E driven by increasing focus on Chronic segments, good anti-infective season and new launches in key therapies.
Looking ahead, we expect USFDA approvals to pick-up. Alkem’s pending pipeline stood at 57 ANDAs (abbreviated new drug applications) and plans to launch 8-10 products in FY20E. Despite high base for US business, we expect y-o-y growth in FY20 led by new launches (already approved, new approvals) and ramp-up in existing products. We expect revenue/PAT to clock 9 per cent/18 per cent CAGR over FY19-21E.
ALKEM generates >85 per cent of its total EBITDA margin from domestic business. We expect EBITDA margin expansion of 200 bps to 17.2 per cent through FY19-21E driven by better product-mix and improved field force productivity and positive operating leverage.
Looking ahead, we remain positive on the medium- to long-term growth prospects of Alkem on the back of stable revenue growth from domestic business. We expect stock to command premium over its peers on account of higher exposure to India business. We maintain our ‘buy’ recommendation on the stock with a target price of ₹2,050.
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