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Yes Securities Report
Alkem Laboratories Ltd.'s Q4 results were below expectation as revenues essentially flat at +1% YoY on back of 2% YoY decline in domestic sales. Notably, company did better than guided margin in H2 and Q4 margin would have been higher driven by better gross margin QoQ but for increased R&D.
Management guided to similar margin performance or 50- 60 bps higher in FY25 as it ploughs the incremental Ebitda into R&D and Enzene opex (U.S. contract development manufacturing organisation plant to start in Q4 FY25).
Domestic growth is pegged at ~10% supported by rebound in acute season and volume growth in National List of Essential Medicine portfolio. U.S. business to get the benefit of Suprep launch in H1 FY25 and total 6-7 launches in current fiscal.
Our India and U.S. business estimates remain mostly unchanged for FY25 and FY26 though lower than expected performance in Q4 resets the forward earnings base. FY26 estimate is cut by ~5% and we roll over to FY26 estimate with tweak in target PE to 25 times from 23 times (to narrow the discount to domestic peers given the better margin prognosis) even as decline in Pen G prices can lead to additional gross margin upside.
Upgrade to Neutral with revised target price Rs 5,400 (earlier Rs 4,650) as domestic growth and margin can find support from an expected rebound in acute season and steady U.S. performance.
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