Recommendations From Pharmaceuticals Sector

Recommendations From Pharmaceuticals Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

ALKEM LABORATORIES : ON A ‘HEALTHY’ NOTE

HERE IS WHY
☛Strong growth prospects
☛Good market position
☛Impressive financial performance. 

Alkem Laboratories is India’s leading generic pharmaceutical company with global operations. The company is engaged in the development, manufacture and sale of high quality pharmaceutical and nutraceutical products, which are marketed in India and over 50 countries internationally. It is one of the leading companies in India in the acute therapy areas of anti-infective, gastro-intestinal, pain management and vitamins/ minerals/nutrients. Moreover, the company has also been steadily scaling its presence in chronic therapy areas like neurology/CNS, cardiac, anti-diabetes and dermatology. 

India is the main revenue driver for the company with revenue contribution of 67 per cent. US contributes around 25 per cent of the revenue. Over the past three decades, India’s pharmaceutical industry has grown impressively driven by the domestic market as well as its relevance in the global industry. As per the IQVAI Institute Report, the domestic pharmaceutical industry reached a size of USD 20.4 billion in 2018 and is expected to grow at a CAGR of 8-11 per cent over the period 2019-23 to reach USD 28-32 billion by 2023.

Alkem Laboratories has maintained its rank amongst the top ten pharmaceutical companies in India with leading position in the acute segments mentioned earlier. In the chronic therapeutic segments of neurology, dermatology, anti-diabetes and cardiology, the company has grown ahead of the market growth rate, thereby gaining market share. The company also has several new products lined up in the vitamins, minerals and nutrients segment along with nutraceuticals in the areas of pregnancy, bone health, gastroenterology segment, among others.

Meanwhile, pharmaceutical sales will be driven by the fact that up to 688 million people or 11.6 per cent of the global population will be in the age group of 65 years and above by 2022. The global demographic trend towards an older population increases vulnerability to ageing-associated diseases. Furthermore, rapid urbanisation, sedentary lifestyles, unhealthy diets and rising levels of stress are fuelling an increase in chronic and non-communicable diseases. The increased incidence of lifestyle diseases serves as a growth opportunity for better and specialised healthcare solution providers like Alkem Laboratories. 

For the quarter ended December 2019, its gross sales increased 13.26 per cent to Rs 2,181.84 crore in Q3FY20 from Rs 1,926.32 crore in Q3FY19. PBIDT (excluding other income) showed an increase of 44.56 per cent to Rs 453.27 crore in Q3FY20 from Rs 313.55 crore in the same quarter last year. PBIDT margin (excluding other income) for Q3FY20 stood at 20.77 per cent as against 16.28 per cent in the same quarter last year. PAT for Q3FY20 stood at Rs 389.96 crore as against Rs 205.45 crore in the same quarter last year, showing an increase of 89.81 per cent. PAT margin for Q3FY20 stood at 17.87 per cent as against 10.67 per cent in the same quarter last year. The company has manageable debt levels with an interest coverage ratio of about 18.48x. The RoCE for FY19 was 16.49 per cent. The stock is trading at a PE multiple of 24.24x. By virtue of these factors, we recommend our reader-investors to BUY this stock.

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DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

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