Alkem Laboratories
BSE SENSEX
31,214
S&P CNX
9,711
12 August 2017
1QFY18 Results Update | Sector: Healthcare
CMP: INR1,707
TP: INR1,830(+7%)
Neutral
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Weak 1Q due to GST impact; recovery expected in coming quarters
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
ALKEM IN
120
263.9 / 4.1
2238 / 1400
-5/-17/-5
97
33.0
Financials & Valuations (INR b)
2017 2018E 2019E
Y/E Mar
Net Sales
58.5
63.8
74.4
EBITDA
10.0
10.9
13.5
PAT
9.0
8.8
11.0
EPS (INR)
75.7
73.5
91.6
Gr. (%)
7.5
-2.9
24.7
BV/Sh (INR)
353.4 410.4 481.4
RoE (%)
23.4
19.2
20.5
RoCE (%)
21.3
17.7
22.6
P/E (x)
22.5
23.2
18.6
P/BV (x)
4.8
4.2
3.5
Estimate change
TP change
Rating change
Revenue declined 12.5% YoY to INR12.9b (17% miss). Adjusted for accounting
treatment of excise duty cost of INR520m, gross margin remained flat. EBITDA
stood at INR944m, with the margin of ~7% coming in significantly below our
estimate due to poor performance in the domestic business (-21% YoY). R&D
expense stood at INR701m (5.4% of sales). PAT was at INR638m v/s INR2.4b in
1QFY17.
Weak domestic business growth; recovery expected in coming quarters:
Alkem’s domestic business declined 21% YoY to INR8.7b. The company lost
almost one month of sales due to destocking in the channel prior to GST
implementation. Given that 1H is seasonally strong, if full recovery of sales
does not happen by 2Q-end, then company may lose some sales in FY18. Full-
year growth guidance for the domestic business has been brought down to
low-double-digits from mid-teens earlier.
US – continues to grow at steady pace:
US sales came in at USD45m (up
~12.5% YoY). We expect ramp-up in the US business in the coming quarters, led
by the expected launch of 8-10 products in FY18. Also, 2H is seasonally strong
for Alkem due to products like Benzonatate.
Key concall takeaways:
a) Guided for low to mid-teens growth in 2QFY18. b)
Inventory days declined to 17 days by end of June as against 40 days in May . c)
Expect higher than market growth rate going ahead. d) Planning to file 12-15
ANDAs in FY18. e) Tax rate guidance of ~MAT rate in FY18E and 12-15% in
FY19E (lower in FY19E due to annual impact of tax benefit from the new Sikkim
plant).
Maintain Neutral:
We continue believing that Alkem is the best way to play the
domestic growth story (>70% of revenue and >85% of EBITDA came from India
in FY17). Having said that, at current valuations, the stock provides limited
room for upside. Our target price of INR1,830 for Alkem is based on 20x FY19E
PER (v/s INR1,900 @ 20x FY19E PER). We have cut our FY18/19E EPS estimate
by 8%/4%, as we build in the impact of slower domestic growth and INR
appreciation.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Kumar Saurabh
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
Ankeet Pandya
(Ankeet.Pandya@MotilalOswal.com );