Motilal Oswal's research report on Alkem Laboratories
Alkem Laboratories (ALKEM) reported lower-than-expected operating performance in 4QFY23. While sales were better than expected in domestic formulation (DF) and Non-US exports, higher raw material (RM) and marketing costs hit profitability for the quarter. It continued to lead the industry in DF segment for FY23 across its focus therapies. We cut our FY24E/FY25E earnings by 6%/7% to factor in: a) increased promotional spends, b) prolonged period of elevated RM cost, particularly Pen-G, and c) higher effective tax rate (ETR). We continue to value ALKEM at 21x 12M forward earnings to arrive at our TP of INR3,470. While ALKEM is on a steady growth path in the DF segment, it is also executing its efforts to optimize operating cost and improve overall profitability. Further, the company is adding another growth lever through investment in biosimilar segment. Maintain Neutral due to limited upside from the current levels.
Outlook
We cut our FY24E/FY25E earnings by 6%/7% to factor in: a) increased promotional spends, b) prolonged period of elevated RM cost, particularly Pen-G, and c) higher effective tax rate (ETR). We continue to value ALKEM at 21x 12M forward earnings to arrive at our TP of INR3,470.
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