Neutral Alkem; target of Rs 5160: Motilal Oswal

Motilal Oswal recommended Neutral rating on Alkem with a target price of Rs 5160 in its research report dated February 21, 2024.

Broker Research

February 22, 2024 / 19:43 IST

Neutral

Motilal Oswal's research report on Alkem

ALKEM is one of the pharmaceutical companies with the highest proportion of (66% of total sales 9MFY24) sales from the domestic formulation (DF) segment. While it continues to outperform the industry in the DF segment, the outlook is dependent on the variability of season and acute infections as it derives 82% of DF sales from acute therapies. After muted performance in the US generics business (23% of sales) over FY18- 23, there has been some recovery in 9MFY24. The sound compliance trackrecord and a healthy product pipeline would enable 6% sales CAGR in CC terms to USD394m over FY24-26. Further, ALKEM is focusing on the biosimilar and CDMO business through Enzene biosciences and expects to reach breakeven in FY25. Over FY18-23, ALKEM has delivered 13%/10%/12% Revenue/EBITDA/PAT CAGR. However, ROE decreased from 15% in FY18 to 14% in FY23.

Outlook

Considering 9% earnings CAGR and return ratio stabilizing at ~18% over FY24- 26, we value ALKEM at 25x 12M (in line with its 10-yr average and 17% discount to sector average) forward earnings to arrive at a target price of INR5160. We believe the current valuation and ~65% stock appreciation over the past one year adequately factor the upside in earnings. We reiterate our Neutral stance on the stock.

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