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Alkem Labs sinks 9% in 2 days; FY24 India sales to miss double-digit growth

Alkem Labs reduced its India business revenue growth forecast to "high single-digit" from low double digits for FY24; BofA sees a downside of 15% to Rs 3,500 for the stock

pharma, medicine, drugs

SI Reporter New Delhi

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Shares of Alkem Labs have lost 9 per cent in the last two sessions following the release of its June quarter (Q1FY24) earnings. On Friday, it slipped to an intra-day low of Rs 3,833, down 7.5 per cent. 

Despite a firm growth in the top line and bottom line, investors rushed to exit the stock, taking note of the underperformance of the domestic business and the lowered revenue guidance for the same. 

The company’s India sales (65.2 per cent of total sales for the quarter) rose 6.7 per cent YoY to Rs 1,901 crore in Q1. As per data by IQVIA, its secondary sales grew 7.6 per cent on-year versus an 8.5 per cent growth of the Indian Pharma Market (IPM). 
 

This underperformance was led by a delayed onset of monsoon, especially in the acute therapy segment, which includes anti-infectives, gastrointestinal, pain relievers, vitamins and minerals. 

Alkem derives 60-65 per cent of its domestic revenues from the acute segment. 

Investor sentiment has further been punctured as the company also reduced its India business revenue growth forecast to “high single-digit” from low double digits for FY24. 

“Double-digit revenue growth for domestic business seems challenging presently but it will surely be a very high single digit. It also depends on the acute segment’s seasonality going ahead in Q2FY24. But we are confident on achieving the 16 per cent EBITDA margin guidance for the fiscal,” the management said. 

Global brokerage HSBC downgraded the stock to hold with a target price of Rs 3,945. BofA has a target price of Rs 3,500 (downside of 15.5 per cent over Thursday's close) with an 'underperform' rating. 

“Alkem’s muted Q1 growth in India and commentary on a similar trend for the crucial Q2 (Q2/Q3 have high seasonality) does pose a risk for FY24 growth & margins. Consensus estimates will likely see a cut,” it said. 

Those at Nomura have a neutral stance on the stock with a target price of Rs 3,632. 

Overall, the company’s profit after tax rose 124.6 per cent YoY to Rs 286.7 crore for Q1, while revenue grew 15.2 per cent to Rs 2,967.7 crore. 

EBITDA margin for the quarter expanded to 13.1 per cent from 7.9 per cent in Q1FY23 on softening of select raw material prices, favourable currency impact, easing of freight cost and implementation of some cost optimization efforts, it said. 

In the domestic market, while acute sales were weak, the company continued its traction in chronic therapies with 15.8 per cent YoY growth compared to the 9.9 per cent YoY growth of the IPM. 

“Chronic therapies like anti-diabetic, neuro, and derma continues to grow much faster than the market thereby gaining market share,” it said. 

US sales, which made up 23.9 per cent of total Q1 sales, saw a strong annual growth of 25 per cent and 17.5 per cent QoQ.

Other International Market sales contributed 10.9 per cent to total sales and registered an annual growth of 56.5 per cent. 

R&D expenses for the quarter came in at Rs 120. 2 crore, or 4.1 per cent of total revenue compared to Rs 132 crore a year ago. (5.1 per cent of total revenue in Q1FY23). 

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First Published: Aug 11 2023 | 2:19 PM IST

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