Recommendation 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 ‘PRESCRIBED’ JOURNEY OF SUCCESS
HERE IS WHY
β Huge growth potential
β Good returns on capital employed
β Good financial improvement
Alkem Laboratories Limited is a pharmaceutical company engaged in the development, manufacture and sale of pharmaceutical and neutraceutical products. The company operates through two segments: pharmaceutical and investing. It produces generics, generic drugs, active pharmaceutical ingredients (APIs) and neutraceuticals, which it markets in India and approximately 50 countries internationally, primarily the United States. The company has approximately 16 manufacturing facilities, of which 14 manufacturing facilities are at geographically diversified locations in India and two in the United States.
The company has consistently ranked amongst the top 10 pharmaceutical companies in India, backed by an extensive portfolio of over 800 brands, vast sales and distribution network pan-India, and an experienced management team. For the quarter ended September 2020, consolidated revenue from operation registered a growth of 4.36 per cent to Rs 2,362.80 crore from Rs 2,264.03 crore in the corresponding period, previous year. Total income witnessed a growth of 4.48 per cent to Rs 2,398.34 crore for Q2FY21 as against Rs 2,295.45 crore in Q2FY20.
India sales contributed 66.7 per cent to total sales in Q2FY21 and US’ sales contributed 26.8 per cent to total sales in Q2FY21. The company’s EBITDA (excluding other income) saw a growth of 32.68 per cent to Rs 600.49 crore in Q2FY21 from Rs 452.59 crore in Q2FY20. EBITDA margin saw an expansion of 27.13 per cent to 23.71 per cent. Consolidated net profit for the period saw an increase of 26.54 per cent to Rs 481.51 crore in Q2FY21 from Rs 380.52 crore in Q2FY20. During the quarter, the company grew ahead of the market in the therapy areas of anti-infectives, gastrointestinal, vitamins, minerals, nutrients, cardiac and anti-diabetes. Alkem Laboratories witnessed a significant recovery in its India business driven by pick-up in a new prescription generation.
The company’s international business also continued its healthy growth momentum led by its US’ business which delivered a robust growth of 28 per cent year-on-year during the first half of the fiscal year. Its existing products revenue at USD 7-8 million per product is higher compared to Indian peers. Its strong pipeline at 56 filings pending for approval and only 50 per cent products commercialised from the approved 91 provides ample scope for mid-term growth. Under its digital initiatives, the company started ‘Konnect to Clinic’ – a telemedicine app that currently has 20,000 doctors on this platform. Alkem Laboratories aims to bring 10-15 per cent of the total doctor universe (1 million) connected to this app.
Over the next few years, this could be a substantial feature replacing ‘feet on the street’. Acute therapies like antiinfectives, gastro-intestinal, pain, analgesics, vitamins, minerals and nutrients witnessed a healthy pick-up in Q2FY21 from the lows of the Q1FY21 as gradual unlocking has resulted in some traction in new prescription generation. Recovery in acute therapies is likely to benefit the company the most, given its dominant position in the segment. The company had a healthy return on capital employed (RoCE) of around 18.60 per cent and a return on equity (ROE) of around 21.51 per cent. The stock is trading at a PE multiple of 22.59x. By virtue of these factors, we recommend our reader-investors to BUY this stock.
