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Sector Outlook: Positive
Weak domestic business impacted margin profile
Alkem reported a slight revenue growth of 1.1% YoY to Rs. 29,358 million in Q4FY24, but it was down 11.7% QoQ and below market expectations of Rs. 29,650 million. India’s business grew by 1.9% YoY, but the anti-infective segment saw subdued growth due to sporadic seasons, affecting Alkem more than the industry. The company’s annual growth was 1.4%, compared to the IPM’s 5.7%, though Alkem outperformed in anti-diabetic, dermatology, and VMN therapies. International business saw robust sales growth of 16.4% YoY, driven by volume growth and strong non-US market performance. EBITDA rose 13.8% YoY to Rs. 4,020 million, with an EBITDA margin of 13.7%. Profit after tax surged 349.9% YoY to Rs. 3,045 million due to lower deferred tax liabilities. The company remains a top player in the Indian pharmaceutical market, maintaining its leadership in the anti-infective segment.
Key Concall Highlights
Domestic Business:
- Alkem faced challenges in acute therapy due to the delayed monsoon.
- The chronic portfolio in Alkem’s domestic business performed well, outperforming the Indian Pharmaceutical Market (IPM) in FY24.
- Despite the issues, the company remains optimistic about future growth.
- Alkem expects to maintain high single-digit growth for its India business in FY25.
US Business:
- Alkem’s US revenues have shown strong growth, highlighting its strategic pricing approach.
- The company aims to maintain price stability with minimal single-digit price erosion in the US market.
- Alkem plans to launch six to seven new products in FY25, including one relaunch.
- The company expects about 7-8% growth from these new product launches in the US market.
Enzene Biosciences:
- The company’s biosimilar business is performing well and gaining significant traction in the domestic market.
- The portfolio includes seven products.
- Alkem aims to maintain and build on this momentum in FY25.
Trade Generic Business:
- Trade generics accounted for approximately 20% of domestic sales and performed well during the quarter.
- The company sees trade generics as a key driver for growth within its Indian business.
- New product launches in the trade generic segment are planned, which should further boost growth and improve margins in the medium term.
Marketing Representative Strength:
- Alkem’s Indian business has 12,000 medical representatives (MRs) and 5,000 managers.
- Productivity for acute and chronic therapies is around Rs. 4.5 lakhs per month.
- 82% of the MR force focuses on acute treatments, while 18% focus on chronic therapies.
- The company plans to increase productivity by expanding the MR force by 10% in chronic therapies.
- Focus areas for this expansion include cardiac, anti-diabetic, and CNS therapies.
Capex Update:
- The company has given guidance for Capex of Rs. 600-700 crores, including the biosimilar facility.
Other Key Highlights:
- R&D spend is estimated to be 4.5-5% of sales, including clinical trials for biosimilar portfolios.
- The US generics segment has reduced price erosion intensity to low single digits.
- The company is building a war chest for acquisitions and is hungry for the right opportunity.
Valuation and Outlook
Alkem’s revenue growth in Q4FY24 was modest, impacted by lower domestic formulation sales and higher R&D spending. Despite this, the company is launching many new products to drive future growth and improve margins. Alkem underperformed the Indian Pharmaceutical Market (IPM) in key therapies like anti-infective, pain/analgesics, and gastro, but improved its ranking in cardiac and VMN segments. The company plans to capitalise on this momentum for better performance in upcoming quarters. In the biosimilar segment, Alkem has developed and commercialised several products in India and is working on more assets for the branded generics space. The US business, which accounts for 21% of sales, performed well, aided by a slowdown in US price erosion. The company expects 6-7 product launches in FY25, contributing to 7-8% growth. Other international markets like Chile, UK, and Germany also showed strong growth. Management projects a 10% revenue growth for FY25, with stable gross and EBITDA margins. Overall, Alkem anticipates improved trends in both domestic and international markets due to increasing demand, market share, and lower raw material costs.
