Alkem Q2 FY21 First cut - In line revenues - YES Securities

- India sales flat yoy in what is seasonally best quarter; company growth ahead of market in key therapy areas of anti-infectives, gastro, VMS. Launched Favipiravir in the quarter. AIOCD data showed acute care struggling in July-Aug. Flat growth imply company brands would have gained market share

- US growth of ~19% yoy would have included ~6% currency benefit; growth driven by new launches

- Gross margin declined 300bps qoq and flat yoy despite a strong India business qoq; EBIDTA margin dipped sharply yoy on lower other expenses as reckon domestic costs savings still driving bulk of margin improvement

Call takeaways

Q2 highlights

- Trade generics growth looked strong due to low Rx growth; acute low single digit while chronic was avg. VMS has shot up

- See anti-biotics sales go up once covid subsides; will not see a drastic drop in vitamins even after end of covid as people will remain wary

- Q1 had one-offs in gross margin hence declined qoq; impact of increased trade generics offset by better mix. Normalized gross margin is 60-61%

- Do not think expenses will go up to pre-COVID level; conferences for eg are better online as it saves doctors time

Outlook commentary

- 22-23% consolidated margin appears realistic in few years

- Not thinking of rationalizing MRs as a fallout of digital adoption; these costs will come back in a year or so

- October was good for growth and sense is growth could be better distributed than just in Q2; can look to double digit Rx growth in domestic business in H2

- 70-80% of patient footfall is back and MRs also doing 8-9 doctors calls vs 11-12 earlier

- Export incentives impact of 80bps in Q3 FY21

- Chronic - Cardio and diabetes brands growing at double digit rates, much faster than market

- Derma - 10k doctors, cardio/diabetes - 20-25k doctors but for neuro only 2-3k doctors hence volumes have been impacted and declined 17% during COVID so Alkem's Alzheimer product has suffered

- Biosimilars - 2 peptides and 1 MAB launch in Jan-Mar quarter in India

US business

- H1 - did 6-7 launches and total 12 -13 in FY21

- 15% ROCE target for US - not anywhere near that number but believe have a good shot in few years

Shares of Alkem Laboratories Ltd was last trading in BSE at Rs.2768 as compared to the previous close of Rs. 2752.1. The total number of shares traded during the day was 2863 in over 505 trades.

The stock hit an intraday high of Rs. 2799.8 and intraday low of 2707.1. The net turnover during the day was Rs. 7898414.

Source : Equity Bulls

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