Cost initiative measures boost margin profile Alkem reported a revenue growth of 2.2% YoY / up 3.3% QoQ to Rs. 30,318 mn and was above market expectations of Rs. 29,950 mn. India’s business reported a single-digit growth of 6.9% YoY due to higher secondary sales in major therapeutic segments. During the quarter, as per secondary sales data by IQVIA, for Q1FY25, the company delivered an annual growth of 8.4% compared to IPM growth of 8.7%. Although Alkem India’s business growth has been below IPM for the past two quarters, we believe the company has a strong India franchise and expect its India formulations revenue to grow in line with IPM over the next two years. The US business was essentially flat sequentially at USD 77 mn due to increased competition in its one-off opportunities and ongoing price erosion. EBITDA increased 56.4% YoY basis to Rs. 6,086 mn, and the EBITDA margin stood at 20.1% for Q1FY25. Profit after Tax stood at Rs. 5,502 mn (up 91.2% YoY / up 80.7% QoQ) in Q1FY25, while PAT margin came at 18.1% versus 10.4% in the previous quarter. Investments in Research & Development stood at Rs. 1,257 mn (4.1% of sales) in Q1FY25. Alkem continues to maintain a leadership position in the anti-infective segment and remains among the top five companies in the Indian pharmaceutical market with .
Key Concall Highlights
Domestic Business Outlook:
Despite the acute business struggling with underperformance in its essential therapies, Alkem’s domestic business, particularly the chronic portfolio, has demonstrated resilience during the quarter. The company remains optimistic and expects an improvement in the largest therapies, such as Anti-infective, from Q2FY25 onwards. It aims to grow the business in line with the IPM therapy growth rate.
Field Force Update:
The company’s current field force is 7,200 MRs. There are no plans to expand the field force in FY25, but the aim is to improve productivity (PCPM) from the current Rs. 0.5 mn.
US Business:
Alkem’s US revenues have shown healthy performance, a testament to its strategic approach to pricing. The company aims to maintain price stability with low single- digit price erosion in the US market. During the quarter, the company launched one product in the US and received approval for three ANDAs from the US FDA, including one tentative approval. The company is expecting around eight to ten launches in FY25 and is anticipating around 7-8% growth from new product launches in the US market.
Trade Generic Business:
Trade generics accounted for ~20% of domestic sales and reported inline performance during the quarter. The company expects trade generics franchisees to remain a key driver for the growth journey within the Indian business. The company is going ahead with many new products on the generic trade side, which should further propel its business growth with improved margins in the medium term.
M&A:
The company is open to acquisitions that align with its strategic goals. They will actively seek strategic acquisition opportunities supported by a substantial cash reserve.
Biosimilar CDMO business:
So far, the company has invested Rs. 4-4.5 bn in the biosimilar CDMO business. This business contributes a negative margin but is expected to break even in FY26.
Other Key Highlights:
- R&D spending is estimated to be 4.5-5% of sales, including clinical trials for biosimilar portfolios.
- Expanding into new businesses, medical devices, and OTC products, these businesses are yet to be launched.
- Improved API pricing contributed to profitability, with expectations of stability in the coming quarters.
Valuation and Outlook
Alkem recorded flat annual revenue growth in Q1FY25, led by domestic formulation business underperformance mainly due to the anti-infective and pain therapies. However, the company is going ahead with the launch of many products, which should further propel growth with improved margins in the medium term. The acute business needs better performance in critical therapies, viz. Anti-infective, Pain, and Respiratory which account for 2/3rd of Alkem’s India revenue. To grow its chronic business, the company has consistently invested in creating new divisions and adding MRs, resulting in a higher contribution of ~20% from chronic products to India’s revenue. The US business (~21% of sales) registered weak performance during the quarter, led by drug shortage. The company is expecting around six to seven launches in FY25, including one relaunch, and is looking at around 7-8% growth contributed by the new product launches in the US market. The RoW market grew by 2.2% YoY. As per the management, the growth in RoW markets is also expected to remain strong going forward. During the quarter, the successful resolution of USFDA Form 483 was a significant development at the Baddi facility. Overall, the management expects revenue growth of around 10% for FY25 and aims to maintain gross and EBITDA margins within the current range. We expect Alkem’s domestic and international businesses to witness better trends, led by improving demand, increasing market share, and softening raw material costs.
