Alkem Laboratories is grabbing the Street's eyeballs

Good momentum in domestic sales and growing US business help stock movement

Alkem Laboratories, which underperformed initially after listing a year back, has gained the Street’s attention and delivered phenomenal returns of 23 per cent since February. The change in sentiment, which also makes Alkem an outlier in the pharma pack, is led by the company’s good December quarter performance. Moreover, its future prospects remain equally good.
 
The company, which derives more than 70 per cent of its revenue from domestic market, had seen concerns on new drug pricing, and later the note ban, which led to the stock’s subdued performance. But, as the note ban impact faded, sentiment improved and got a further boost as the company’s December quarter performance dispelled all fears.
 
While US sales (about 22 per cent of revenue) grew 30 per cent year-on-year and provided the boost to revenues, domestic sales were also up 13.5 per cent, thereby leading to a 16 per cent rise in revenues in the December quarter.
 
The domestic growth is impressive when compared to the industry. In India, a favourable product mix continued to drive growth in spite of price cuts in certain products due to new drug pricing and a decline in anti-infective segment sales. Even in the nine months period ending December 2016, Alkem’s domestic sales are up 13.5 per cent versus 9.9 per cent IPM (Indian Pharmaceutical Market) growth.
 
The outlook for domestic growth remains strong. Alkem has been able to maintain leadership in acute segment and gain share in chronic segment. It has grown faster than the industry in chronic segments of neurology, dermatology, cardiology and diabetes care, among others. Analysts at Angel Broking believe the company has been able to gain market share in these segments too. Analysts at Motilal Oswal Securities expect medium-term growth in high teens for Alkem led by steady growth in acute segment and sales force productivity improvement in chronic segment. To boost sales of over the counter (OTC) products, Alkem has entered into an alliance to exclusively market, sell and distribute Tiger balm range of products in India. While US growth during the quarter was helped by seasonal spurt in sales of oral cough suppressant and antitussive drug in the winter season, even for nine months ending December 2016, it has grown at an impressive 22 per cent.
 
This shows the company is on a growth path in the US. For an accelerated growth, Alkem is developing its product pipeline and as on 31 December had about 43 products pending approvals for launches, including some first-to-file for which it may get six months exclusivity.
 
Not surprisingly, the Alkem stock is up almost 38 per cent since lows seen in last week of December; it is among top five pharma gainers in the last 1, 3 and 6 months as well. Going ahead, while the company’s prospects look good, analysts’ target prices ranging Rs 1,850-Rs 2,000 indicate limited near term upside. Long-term investors could look at buying on corrections.