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Trading 9% Near To Its 52-Week High, Buy This Pharma Stock Says HDFC Securities

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Brokerage firm HDFC Securities is betting on the shares of Alkem Laboratories Ltd. The brokerage has set a target price of Rs. 4311 for the stock, which it expects to attain in the next two quarters. Alkem Laboratories Ltd was trading at Rs. 3,680 at 3:30 p.m. IST today, down Rs -25.80, or -0.70 percent. According to the NSE, the stock hit a 52-week high of Rs 4,070 and a 52-week low of Rs 2,540.05 on September 24, 2021 and March 24, 2021, respectively. The stock is now trading 9.58 percent lower than its 52-week high and 44.87 percent higher than its 52-week low.

 

Q2FY22 results according to the brokerage
 

Q2FY22 results according to the brokerage

  • Alkem reported a strong set of results in the quarter. Revenue grew 18.5% YoY at Rs 2800cr as against an estimate of Rs 2633cr. Gross margin improved 170bps YoY at 62.2% on the back of a higher share of domestic business. EBITDA (earnings before interest, taxes, depreciation, and amortization) margin slipped 310bps YoY at 22.3% due to a significant rise in other expenses. PBT was up 6.2% YoY at Rs 581.5cr. Net profit grew 15.3% YoY at Rs 544cr on strong sales growth and lower tax expenses.
  • Domestic formulation revenue increased 26% YoY at Rs 1961cr. Growth was mainly led by acute therapies like anti-infectives, vitamins/minerals/nutrients, gastrointestinal and pain management segments. Trade Generic business also delivered robust growth during the quarter.
  • US sales declined 2.6% YoY at Rs 610cr. The company reported subdued performance in its US business due to high single-digit price erosion in the base business. New products launched in the US market offset pricing pressure in the base business. Other International markets' business grew 27.5% at Rs 195cr. R&D expenses stood at Rs 141cr or 5% of revenue as compared to 5.9% of revenue in Q2 FY21.
  • The company has 16 brands that feature amongst the top 300 brands in IPM and has 13 brands with annual sales of over Rs 100cr. The company's trade generic business also delivered healthy growth during Q2FY22 and H1FY22.
Buy With A Target Price of Rs 4311

Buy With A Target Price of Rs 4311

HDFC Securities has said in its latest research report that "Alkem's chronic business continues to grow at a strong pace, leading to improvement in its market share and ranking in therapy segments of CNS, anti-diabetic, cardiology and dermatology. The company looks to outperform in the chronic segment on the back of 1) new product launches including in-licensed products and 2) better field force productivity. We believe there is good headroom for growth in the US market given the company has a relatively low base. Alkem has cumulatively filed 159 ANDAs with the US FDA out of these 41 pending approval, it has cGMP compliant manufacturing facilities and own front end to distribute and market its products. We remain positive on the long-term outlook considering the company's strong brand presence in the domestic market with sustainable growth and scale-up of US generic business."

According to the brokerage "Alkem has built a strong platform for growth in the US with its diversified manufacturing base (6 FDA approved facilities, including 2 in the US), pipeline of 55 ANDAs (104 products approved) and front-end presence. The company targets 12-15 filings and 10+ launches every year. Alkem's prudent capital allocation framework and refraining from investments in high-risk areas, has resulted in better return ratios."

"We expect 15% CAGR in revenue led by strong 17% growth in domestic formulation business and 10% CAGR in US business over FY21-24E. Healthy revenues and a steady margin of around 20-22% would lead to a strong 12% CAGR in PAT (on a high base in FY21) over the same period. The operating margin has remained strong at 23% even in H1FY22. We expect the margin should remain at around 20-21% in the medium term, given the increase in marketing and other expenses. Operating profitability could also be impacted by the surge in price of key starting materials (KSM) and active pharmaceutical ingredients (API) imported from China. A strong branded portfolio in the domestic market, robust balance sheet and healthy return ratios are some of the positives. We feel investors can buy the stock in the band of Rs 3706-3728 and add on declines to Rs 3315 (18.5x Dec-23E EPS) for a base case target of Rs 4030 (22.5x Dec-23E EPS) and a bull case target price of Rs 4311 (24x Dec-23E EPS) over the next two quarters" the brokerage has further claimed.

Disclaimer

Disclaimer

The above stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Story first published: Wednesday, January 12, 2022, 17:49 [IST]
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