Buy Alkem Laboratories; target of Rs 3242: Dolat Capital Market

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26 Aug, 2025 12:21

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Dolat Capital Market's research report on Alkem Laboratories

Alkem reported a better than expected 3Q on the operational front despite an in-line revenue growth of 6% YoY. Better gross margins (lesser free samples) and higher contribution of trade generics aided EBITDA margin at 22.8% vs our expectation of 21.2%. One-time income of Rs340mn on sale of brand aided PAT at Rs4.5bn, 20% beat on our numbers. While the acute portfolio is on a recovery mode, outperformance in trade generics rendered 6% YoY growth. US was steady at $84mn, up 5% YoY. As marketing and promotional activities resume in India, EBITDA margins declined 260bps QoQ. Management commentary remained upbeat on the growth trajectory in the US as profitability improves with an aspirational RoCE target of 15%. On the biosimilar front, company plans to launch 2 peptides and 1 Mab in 4Q, moving up the value chain. Besides, the established brands in India continue to do well ably supported by Gx and chronic segment. Alkem has built a decent platform for growth in the US with its diversified manufacturing base (6 FDA approved facilities including 2 in the US), pipeline of ~100 ANDAs (only 50% commercialized) and front-end presence. US business targets 12-15 filings and ~10 launches p.a. With sales force expansion spend in base and enhanced digital marketing tools, we expect EBITDA margin trajectory to improve to ~20% by FY23E vs 16-17% earlier. No major capex, compliant facilities and improving profitability in the US is expected to boost FCF/EBITDA conversion rate at ~70% by FY23E. Factoring in the strong 9M, we increase our FY21E earnings by 20%.

Outlook

At CMP, the stock trades at 21.7x/19.3x FY22/23E earnings. Given its improved margin trajectory, we value the company at 23x FY23E EPS of Rs141. Maintain BUY.

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