Q1FY24 Review: Alkem Laboratories: US & RoW business saves the day

11 Aug 2023 , 02:28 PM

Alkem’s India business growth was soft at 7% YoY in Q1, which was more than offset by a strong 17/56% YoY growth in the US/RoW business. Mgmt expects US/RoW sales to sustain as there was no one-off benefit in the quarter, the outlook for the India business remains muted at high single-digit growth for FY24, given the seasonality impact in the acute-heavy domestic business and sluggishness in Anti-infectives over the past couple of months. Nonetheless, Alkem’s chronic business continues to outperform market growth by 400-500bps p.a., which along with lower API/RM costs and US cost optimisation efforts, should enable Alkem to imptove its Ebitda-margins from 14% in FY23 to 16% in FY24, and thereafter, by 50-100bps p.a. 

Despite Q1 beat led by the US/RoW business, analysts of IIFL Capital Services downgrade their FY25/26 EPS by 2% to factor in the higher ETR of 17% vs their earlier assumption of 14.5%. Maintain BUY and their TP of Rs4,400 (6% upside) is pegged at ~26x 2YF EPS. 

High-single-digit growth expected in Alkem’s India business in FY24: With delayed monsoons and sluggishness in Anti-infectives market over past 2 months, mgmt expects IPM to grow 8% in FY24 and Alkem to outperform IPM growth only by 100-200bps. While Alkem has been outperforming chronic market growth by 400-500bps (Alkem grew 16% in Q1 vs IPM chronic growth of 10%), chronic is only 20% of Alkem’s India business. Owing to muted season for acute segment this year, analysts of IIFL Capital Services now expect Alkem’s India business to grow only 9% in FY24, and thereafter, growth to improve to 12% in FY25/26. 

US and RoW sales are expected to sustain at the Q1 run-rate, given that there was no-off in the business. Mgmt highlighted that US price erosion is in high-single digits currently vs low-double digits in FY23 and US sales growth in Q1 was driven by the base business rather than new launches. Alkem intends to launch 8 new products in the US in FY24. Analysts of IIFL Capital Services have assumed 5/19% Cagr in Alkem’s US/RoW sales over FY23-26. 

Mgmt has reiterated 16% Ebitda margin guidance for FY24, driven by API cost moderation, increasing chronic revenue share (Alkem’s chronic business also has 17-18% Ebitda margins), and US cost optimisation plans of Rs2-2.5bn over the next 2 years. Thereafter, Alkem is targeting 50- 100bps margin improvement p.a. While Enzene is currently loss-making, sales expected to increase from Rs1.5bn in FY23 to Rs2.6bn in FY24.