HDFC Securities is bullish on Alkem Labs has recommended buy rating on the stock with a target price of Rs 2410 in its research report dated August 11, 2018.
HDFC Securities' research report on Alkem Labs
Alkem’s 1QFY19 results were largely below our estimates. Revenue at Rs 16.7bn, was up 28.9%YoY and 10.3%QoQ. EBITDA of Rs 2.1bn grew 127%YoY with margin coming up to 12.8%, up 550bps YoY. PAT at Rs 1.4bn was 115% higher than that in 1QFY18. The impressive growth is attributed to a low GST-hit base. EBITDA, margin, and PAT missed our estimates by 21%, 380bps, and 22% YoY respectively. Domestic growth was 25.7%. As per AIOCD, It grew higher than IPM at 14.2% v/s 10.6% in the quarter. International business too delivered impressive performance, grew 35.1% YoY. The first quarter is usually positive for Alkem, however the low EBITDA margin is due to a delayed sale of Rs 1.9bn which was booked in July 2018. Adjusted for this, the margin comes at ~17.5%, in-line with our estimates. With this sales pushed ahead, Q2 will be a bumper quarter. After EIR being issued for the Daman facility from US FDA, Alkem is not expected to have any regulatory issues going ahead.
With continued domestic growth above IPM and US regulatory hurdles overcome, we see positive potential in the stock returns as long-term growth story remains on-track. Maintain BUY with a revised TP of Rs 2,410 (24x FY20E EPS).
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