Alkem Labs Q2 Results Review - U.S. Drags Earnings: Motilal Oswal

Motilal Oswal Report

Alkem Laboratories Ltd. delivered largely in-line earnings for the quarter. While domestic formulation business growth was in line with our estimate, it slightly underperformed compared to the industry largely due to the subdued demand for acute therapies.

The decline in US generics intensified due to a lack of launches and ongoing price erosion.

We maintain our estimates for FY25/FY26/FY27. We value Alkem Labs at 25 times 12 months forward earnings to arrive at a target price of Rs 5,720.

Alkem Labs is recalibrating its US generics business with a reduction in lowmargin products and focusing on limited competition products. Further, it is preparing itself for CDMO opportunities by building manufacturing capabilities/capacities in the biotech front from Q4 FY25/Q1 FY26 onwards.

The DF growth prospects remain volatile given the higher exposure to acute therapies. Considering these aspects, we expect a 10% earnings CAGR over FY25-27. We maintain a Neutral rating, given the current valuation captures earnings upside.

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