Alkem Laboratories - 3QFY2017 Result Update - Angel Broking

Domestic business remains strong, US business shows strong growth: Alkem reported revenue grew of 15% yoy in 3QFY17. Domestic revenue grew by 16.8% yoy to Rs. 1,030cr while exports grew by 18.7% to Rs. 432cr. US revenue grew by 30% yoy to Rs. 339cr. Other exports de-grew by 9.8% yoy as company continues to focus on select few international markets. Domestic business contributed 70.4% of the total revenue. Exports mix changed substantially with US contribution in total revenue going up from 18.7% in 2QFY17 to 23.2% in 3QFY17.

Gross margins improved by ~300bps on yoy basis and 270bps on qoq basis. Staff costs increased due to increased incentives but are likely to come down going ahead. As % of net sales, staff cost was at 19.2% in the quarter vs. 16.8% in 2QFY17 and 18.0% in 3QFY16. EBITDA came at Rs. 268cr vs. Rs. 236cr in 3QFY16 showing a yoy growth of 13.7%. 3QFY17 margin at 18.1% shows contraction of ~21bps on yoy basis. Net profit grew by 25% yoy from Rs. 187cr in 3QFY16 to Rs. 233cr in 3QFY17.

Outlook and valuation: The stock at the CMP of Rs. 1,837 is available at P/E of 17.5x of FY19E EPS of Rs. 105. The stock price in CY2017 has appreciated by 13% leaving less room for further upside at this juncture. We expect company to report CAGR of 17.4% and 22.4% in top line and bottom line respectively in next two years. Its ANDA pipeline has not seen strong traction this year so far, despite which Alkem maintains guidance of high single digit ANDA launches going ahead. This justifies the ~29-30% growth in the US business over next two years. We rate Alkem Accumulate with PT of 1,996 based on 19.5x of FY19E EPS.

Source : Equity Bulls

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