Alkem Labs up 8 % as Motilal Oswal upgrades to shop for on domestic biz; USFDA nod for Capecitabine

Motilal Oswal has hiked its value target on the stock to Rs 2,500 per share (from Rs 1,950) because it expects domestic business to grow at 20 % over next three quarters.

Alkem Laboratories share value rallied the maximum amount as 8.5 % in morning wednesday once Motilal Oswal has upgraded its rating to shop for from neutral on the stock, citing likely strong domestic business growth.

"We expect sturdy growth over next three quarters, given an occasional base of half of FY17 (impacted by demonetisation) and Q1FY18 (impacted by GST) and sure recovery of 8-10 days of sales in Q3FY18 thanks to channel restocking post GST," Motilal Oswal said.

The domestic business EBITDA  margin has traditionally been over 21 %.

Thus, high growth within the domestic business can cause around 20 % income margin over next three quarters, as against a normalised EBITDA margin of around 17-17.5 % for the company, it feels.

Motilal Oswal same on condition that the new geographic area plant has become operational and can fancy full tax edges, the rate for the corporate is predicted to come back down considerably to around 15-16 % in FY19.

Besides this, Alkem is going to shift production of profitable product to the new geographic area plant, which is able to guarantee tax savings.

The America and domestic chronic businesses are delivering lower margins, as these verticals were within the investment part and achieved breakeven solely 12-18 months back.

"There is scope for improvement although, in our read – if solely the US and Chronic business EBITDA margins improve to around 20 %, the consolidated EBITDA margin will improve by around 400bp to around 21%," the analysis house said.

Chronic has delivered topline growth of around 21% over the last four years.

Motilal Oswal expects this section to continue delivering robust growth, semiconductor diode by the low base impact, the main target on high-growth therapies (cardio, derma, anti-diabetic, etc.) and also the contribution from its specialised sales team of around 1,700 people.

Alkem's US business has already crossed breakeven purpose in half of FY16. Its own front-end presence, in addition to ramp-up of existing product and new launches, can facilitate drive gain, in keeping with the analysis house.

It feels the US business margin will continue improving led by operating leverage, as around 30 ANDA approvals are expected over the next 24 months.

The analysis house expects Alkem to continue outperforming trade growth of around 10 % within the Acute section (which contributed 90 % of domestic business).

This will be driven by its leadership status in key therapies (antiinfectives, GI, Pain/ analgesics and Vitamin), bridging of gaps within the product portfolio, and robust relationships with specialists (prescription coverage of over 70 percent), it said.

OTC business could be a new growth avenue for the corporate, Motilal Oswal feels.

Alkem has been investment over the last 12 months to determine presence within the Rs 14,500 crore OTC segment. Currently, over-the-counter sales for the corporate stand at around Rs 70-80 crore. Tiger Balm is that the main product during this section, with secondary sales of Rs 60-70 crore.

Meanwhile, Alkem Labs has received approval from the US Food and Drug Administration for Capecitabine tablets that are used to treat breast, colon, or rectal cancer.

The stock price was quoting at Rs 2,020.95, up Rs 53.25, or 2.71 % percent on the BSE.

The Adviser Street is a leading Indian Financial Management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions and high-net-worth individuals.

Visit - Adviser Street

Contact - 8818888127