Alkem extends rally on good Q3 results

The stock rallied 7.5% to Rs 2,015 on the BSE in intra-day trade

Alkem Laboratories rallied 7.5% to Rs 2,015 on the BSE in intra-day trade, extending its 3.5% gain in past three trading sessions, after the company reported 25% year on year (YoY) growth in consolidated net profit at Rs 233 crore for the quarter ended December 2016 (Q3FY17).

Total income from operations during the quarter under review rose by 15% at Rs 1,482 crore on YoY basis. The company said its US business contributed with strong revenue growth during the quarter driven mainly by market share gains.

EBITDA (earnings before interest, tax, depreciation and amortization) margin however remain unchanged at 18.1% in Q3FY17 against 18.3% in Q3FY16.

Alkem Laboratories said the company successfully closed the USFDA inspection at its Daman facility with an Establishment Inspection Report (EIR) in December 2016 which takes out the regulatory uncertainty.

Thus far in the current calendar year 2017, the stock price has appreciated by 24% as compared to 6% rise in the S&P BSE Sensex.

“The company’s US revenue grew 30% YoY and 12% QoQ aided by strong winter season this year and market share gain in certain products. The company indicated that the winter portfolio are its own products (vs. in-licensed), which benefited margins and should normalize to some extent in the March quarter, in our view,” analysts at JP Morgan said in result update and maintain ‘neutral’ rating on the stock.

“The stock price in CY2017 has appreciated by more than20% leaving less room for further upside at this juncture. We expect company to report the compound annual growth rate (CAGR) of 17.4% and 22.4% in top line and bottom line respectively in next two years. Its abbreviated new drug application (ANDA) pipeline has not seen strong traction this year so far, despite which Alkem maintains guidance of high single digit ANDA launches going ahead,” according to analyst at Angel Broking.

Analyst at Spark Capital believes current valuations fully capture Alkem’s medium term prospects and await a correction to turn constructive on the stock.

At 11:41 am; the stock was up 6% at Rs 1,982 on the BSE as compared to 0.62% decline in the S&P BSE Sensex. The stock was trading at highest level since its listing in December 2015.

The trading volumes on the counter jumped multiple folds with a combined 382,616 shares changed hands as against an average sub 100,000 shares that were traded daily in past two weeks on the NSE and BSE.