Alkem Lab: Maintain ‘buy’, revise price target to Rs 3,361

Value goal adjustments from Rs 3,392 to Rs 3,361. Keep ‘purchase’.

Alkem’s 4QFY21 income was according to our estimates; nevertheless EBITDA/PAT missed estimates by 27%/20%. US enterprise was hit by extra-ordinary stock write-offs that led to decrease income and better prices. India enterprise remained wholesome in 4QFY21 and administration indicated that 1QFY22 would get a lift on account of Covid. Our FY22/23 EPS estimates change by -6%/-1%. Value goal adjustments from Rs 3,392 to Rs 3,361. Keep ‘purchase’.

US enterprise takes a success, to recuperate from hereon led by new product launches: US income was down 7% QoQ. Administration attributed the next causes for income decline: 1) One of many prime merchandise within the US had decrease gross sales and therefore needed to take stock write-off 2) Winter merchandise had decrease gross sales within the quarter 3) Product launches had been completed at quarter finish 4) Market share erosion in a number of merchandise. The stock write-offs price Rs 0.8 billion led to US enterprise changing into EBITDA unfavourable in 4QFY21 and hitting firm gross margins by 365bps. We consider US hit was a one-off occasion and can choose up from hereon largely led by new product launches. In FY21, Alkem obtained 19 ANDA approvals however launched solely 12 merchandise, which makes us consider that product launch momentum will probably be wholesome subsequent yr and that might assist progress.

India to get Covid enhance; yr to stay unstable: India gross sales had been wholesome within the quarter and had been up 17% YoY. As per administration, Alkem might get good traction in 1QFY22 for Nutritional vitamins/Minerals, Antacids and Antibiotics enterprise, which is now again to regular ranges. Antibiotics use has been primarily led by pneumonia brought on by Covid, which wasn’t the case within the first wave. The corporate guided for a mid-teens progress for home enterprise in FY22.

Although hospital injectable house has been hit as elective surgical procedures have once more remained subdued, the decline has been greater than offset by sturdy OPD volumes. In our view, India enterprise will witness volatility as a result of covid traction in first half and seasonal impacts in later a part of the yr. At firm degree, we construct in Income/EPS CAGR of 11%/8% for FY21-23E.