Alkem Laboratories Ltd: Indian pharmaceutical company growing consistently

Stock Opportunities
23

Hi All,

US business in terms of future growth

 In Q1 FY21 it filed five products and received approval for two. So far,
it has filed 146 products with US FDA and 88 have been approved (including 13 tentatively).
 Of the 75 final approved products, it has so far launched 65-70 in theUS.
 It aims to launch 10-12 products in the US in FY21.

AS per my understanding,Seems like good pipeline for US in foreseeable future.

Thanks,
Deb

24

Concall notes - Q1 ALKEM LABS -

  1. Being a leader in Anti- Infectives, the company’s business was adversely affected by delay in surgeries , procedures, OPD footfalls etc…due Corona virus outbreak.
  2. IPM declined by 5 pc…YOY due to the reasons mentioned above. Acute therapies like- pain management, anti-infectives, gastrointestinals de- grew even more. Fall in cardiac, dibetic categories- lower. Company’s India business degrew by 5.5 pc due actute heavy portfolio.
  3. US business up by 32 pc. Constant currency growth at 28 pc…driven by new launches and mkt share gains.
  4. Overall EBITDA margin expansion- aprox 11.5 pc !!! This is huge. Gross margins up by 190 bps. Rest of expansion due- cost savings and other income of arund 24 cr.
  5. R&D expenses at 119 cr- 5.9 pc of sales.
  6. Filed 4 ANDAs in US. 2 approvals. Cummulative- 148 filings, only half have been commercialized.
  7. All 6 manufacturing favilities have EIR as on date.
  8. Spillover sales from q4 to q1 this yr- aprox 143 cr…so that was an advantage. But some spillover has happened from q1 to q2 as well.
  9. Cost reductions of q1 due savings on marketting and travelling etc will start to unroll in q2 and by q3 costs may bounce back to pre China Pandemic levels. So the elevated EBITDA margins may not be sustainable.
  10. Growth in trade generics- in double digits. Company is a kind of Pioneer in trade Generics segment and is a very strong player.
  11. Transportation costs have almost normalised.
  12. A lot of gross margin expansion may be sustainable due - expansion of chronic, semi chronic and US business. Pre IPO, company was more or less an acute therapy company.
  13. No agressive CAPEX planned for next 2-3 yrs. Capacities are already in place to drive growth.
  14. Gross margin expansion due better product mix and better operating leverage in the US is sustainable.
  15. Aim to launch 10-12 products in US every year.
  16. India sales- branded generics- 72 pc, trade generics- 28 pc.
  17. Q2 likely to be better than than Q1 as far as acute therapies are concerned.
  18. Further growth in US will depend on new launches. Mkt shares in existing products are reaching their peak potential.
  19. On Mr Trump’s announcements / executive orders wrt pharma Industry- management believes, its more hot air than anything else probably because this being an election year. However, they are prepared as they have manufacturing facilities in US as well.
  20. Current API prices are higher, however the overall impact is manageable. Dont foresee huge price hikes unless the political situation really deteriorates.
  21. Company doesnt intend to be an API player. Company is more of a front end marketting player and a generics manufacturer.
  22. At present, the company intends to remain in oral solids in US. No near term plans of moving onto injectables, topical products in US. They however intend to make specialised oral solids.
  23. Company has launched Marinol in US. ( Marinol is used to treat vomitings / loss of apetite for patients undergoing chemotherapy and nausea / loss of apetitie for HIV positive patients)

Disc : invested from 2450 levels.

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26

Hi,

I see there has been reduction in promoter shareholding in the last quarter.
It has been reduced from 65.88 to 62.43 and it was respectively picked up by non institutions(Not FII or DII)

Alkem shareholding pattern

If we see previous quarter holdings it was kind of contant and last quarter it was a substantial sell.
Anything to worry?

Thanks,
Deb

2 Likes
28

Alkem Labratories - Notes from AR FY 19-20 -

  1. Its the 5th largest Pharma company in India ( domestic ) in terms of mkt share. Has 21 mfg facilities and 6 R&D centers across India and US. R&D spends at 472cr - 5.7 pc of sales.
  2. India Anti-Infective rank- 01, Gastro -03, Analgesic therapries -03. 10 brands in India with sales > 100 cr. 07 brands in the top 100 brands in India. India sales- aprox 5600 cr.

Company’s 10 brands feature in top 2 brands in their respective categories. 09 of them belong to the GI, Anti Infective category, 01 is a multivitamin.
Company’s growth in fast growing areas of derma, diabetology, cardio - at 1.5 to 2 times that of Mkt growth in last FY.

Rank in Neuro / CNS - 07, Vitamins/Minerals/ Nutrients - 04.

  1. US revenues - aprox 2200 cr ( 26 pc of total revenue ). 06 USFDA approved facilities in India and US. US facilities at California ( APIs ) and St Louis ( formulations ). Cummulative ANDAs filed - 144, 89 approvals ( 02 NDAs ). Approved NDAs include - Marinol which the company had acquired. Its used to treat nausea and vomitings during Chemotherapy.

USFDA EIR recieved in 2019-20 for formulations facilities at - St Louis, Baddi, Daman and API facilities at California, Mandva, Ankleshwar

  1. Other Intl Mkts - Sales - 538 cr.( 6.4 pc of total ). Company has presence in over 40 countries. Key Mkts- Australia , Philipines, Chile, Khazakstan. Yearly growth for this yr- 8.4 pc.
  2. Subsidary - Enzene Biosciences ( acquired in 2011 ) opened its first fully connected continious biologics mfg facility in Pune in Nov 19.
  3. Key Financials -

Sales - 8344 cr, up 13.4 pc. India sales up 12.9 pc, US sales up 15.9 pc. FY 16-20 sales CAGR of 13.4 pc.

EBITDA - 1473 cr, up 14.6 pc. FY 16-20 EBITDA growth at 14.6 pc. In FY 20, EBITDA margins up 250 bps to 17.7 pc due cost optimization and process improvement.

PAT- 1127 cr, 48.2 pc…due higher contribution of revenues from facilities in tax exempt zones. Dividend payout - 26 pc.

Gross Debt - 1615 cr. Net cash - (-) 189 cr vs 921 cr in FY 16. Company has been in Capex mode in last 4-5 yrs. No major capex envisaged for next 2-3 yrs.

  1. Current size of Global Pharma mkt - $ 1.25 trillion. Developed Mkts - $ 821 billion, Emerging mkts - $ 357 billion. RoW - $ 71 billion.

Expected growth over FY 20-24 - 3 to 6 pc.

Speciality drugs used to treat complex conditions like cancer, rheumatoid arthritis, multiple sclerosis etc are the fastest growing fields. Presently they represent 36 pc of global pharma mkt. Speciality care is expected to reach 40 pc of global pharma mkt by 2024.

Drugs expected to go off patent in 2020-24 period @ $ 107 billion ( Conventional plus Biologics ).

  1. IPM -

Current size - $ 22 billion. Expected to grow at CAGR of 8-11 pc over 2020-24. Heathcare sector’s govt spending at - 69000 cr in 2019-20 vs 63000 cr in PY. Of the total spending, spending under Aayushman Bharat - PMJAY at aprox 10 %

AB-PMJAY scheme is being expanded by setting up more hospitals in Tier -2,3 cities under PPP route.

Total exports from India - aprox $ 21 billion. From 2010-19, out of 5768 ANDA approvals granted by USFDA, over 2000 were secured by Indian companies. India also has 700 USFDA approved sites ( formulations and APIs ) - the highest number in the world.

Disc : invested from 2500 levels.

4 Likes
29

Alkem has a domestic heavy portfolio contributing nearly 65% to its total revenues. And the domestic portfolio is acute heavy with the company being market leader in antibiotics in India with strong brands. Because the domestic portfolio is acute heavy and antibiotics heavy, the second and third quarters are usually the best quarter for domestic portfolio.

In q1 fy 21, the company clocked a nearly 6% decline in its domestic revenues in line with most pharma companies. The reason being reduced footfalls in hospitals due to lockdown and covid situation. But what was very surprising from the company was its exports performance especially the US business which showed an encouarging growth of 38%.

The q1 profitability y-on-y has shown very strong upward trajectory with operating profits increasing from 264 to 533 crores and net profit showing growth from 185 to 422 crores. q1 fy 21 eps has increased to 35 as compared to 15 in q1 fy 20.

The margin improvement has been startling in q1 fy 21. Part of it is due to reduced costs of promotional activities, reduced travel expenses. Against that there was higher transportation costs and maybe higher API costs. (Alkem is not too much into manufacturing API and largely outsources them. ) Going ahead, the reduced promotional expenses could continue even for q2 fy 21 because a lot of doctors do not still allow MR into their clinics. Travel expenses are also likely to stay at reduced levels. These type of expenses are likely to pick up once the impact of Corona reduce and things start getting back to normal.

Company is likely to face lower tax rates because of higher exports from SEZ facilities with major tax benefits. These benefits are likely to continue till the stipulated time frames.

One aspect of the q1 results that has been vexing me is whether the kind of margin improvement seen in q1 is a one off or is likely to continue going ahead albeit at a slightly lower margin level (with normalisation of promotional and travel expenses) , though still remarkably higher as compared to prevous year’s margins.

If company can sustain improved margins going ahead, then alkem can be a very interesting bet. In concall, management indicated the reduced travel and promotional expenses but barring these, there were no one offs.

If the company has crossed the inflection point and can sustain strong ebidta margins (maybe because it has crossed the chasm in its US business) then even with steady 15-20% sales growth it can show much higher profit growth and improve the return ratios.

I have invested in this company based on the thesis that margin improvement will be a continuous process going ahead and tax benefits and reduced interest expenses will keep aiding the net profit margins.

One thing I found encouraging about alkem is the kind of respect it commands from competitors. I asked about the company to 3-4 regional sales managers I know and all of them said very positive things about the company.

On the flip side, lack of API manufacturing facilities could cause company to face cost and supply issues if API supply crunch happens. Heavy dependence on acute portfolio in the domestic portfolio can be a double edged sword.

Company has put up a biosimilar facility in Pune and this can prove to be a growth engine in CDMO for biologics. The latest annual report mentions company has clients from export geographies. Another manufacturing facility dedicated to exports has been the Indore facility which enjoys tax benefits due to it being in an SEZ.

Technically the stock was one of the strongest stocks all during the March and April carnage and managed to post all time highs during this period in the 2870 region. Post that it corrected to 2200-2300 zone and consolidated above its 200 dema. And post that consolidation it made a sharp upmove post its q1 results to post a fresh all time high of 3090 and then underwent sideways/down correction to 2700 levels and consolidated heavily in the range of 2800-2900. If and when its previous all time high of 3090 is taken out there can again be a sharp upmove.

33 Likes
30

Considering its Acute heavy / domestic heavy portfolio, still Alkem has posted very good performance both QoQ & YoY.

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31

HI Hitesh Sir,

Hope you are doing well. The quarterly sales are out and it seems to me that company has posted again good set of results. Please provide your views considering the results.

Thanks,
Deb

32

Sir how long SEZ tax benefits will get if the benefits are elapsed after some year could the margin contract ?

33

HDFC Securities initiates coverage on Alkem …based on the following factors: a) recovery in acute therapies is likely to benefit Alkem the most, given its dominant position in the segment (rank 1 in Anti-infective, rank 3 in Gastro, rank 3 in Vitamins); b) steady market share gains in chronic (+50bps over the past five years) will contribute to higher growth and profitability; c) rising scale in US generics (USD300mn, growing at double digit CAGR) will contribute~20% to FY23 EBITDA vs. single digit in FY20.

3 Likes
34

Hi,

Another good set of numbers from Alkem.Q3 results are out.

EBITDA stands at Rs. 515.63 crore in December 2020 up 32.06% from Rs. 390.45 crore in December 2019.Alkem Lab EPS has increased to Rs. 33.54 in December 2020 from Rs. 29.15 in December 2019.

Also dividend of 25 per share

Thanks,
Deb

35

Yes, the results are good. But the company has lot of U.S. exposure where pricing pressures have begun to appear as per results of many pharma companies. Will that impact Alkem going ahead - any comments on the issue?

36

Hi,

In last 2 years promoters have reduced their stake by almost 6%.It was around 66% till March 2019 and according to the latest shareholding pattern the figure stands at 60%.

image

Promoter Holdings above 60% is still considered as pretty good however was wondering whether we can ignore this or we should be cautious.

Thanks,
Deb

37

as per screener data
[Nawal Kishore Singh] is moved from Promoter group to Public. he is selling and still holds 2.37%
[Lalan Kumar Singh] stake looks moved to another person( [Maya Devi] and as seen as Public. still holds 2.27%
I have not checked company disclosures, so you can check for more details.

38

Why there is so much variations in the tax rate over the year?

39

Alkem

Highlights from the management interaction

  • For FY22, ALKEM indicated double-digit ANDA launches, which would be higher than FY21. It launched 12 products out of the 19 that had final approvals in FY21. It expects YoY growth in US sales in FY22.

  • The management guided at mid-teen YoY growth in the DF segment in FY22.

  • While the increase in raw material cost/product mix change may impact GM, ALKEM remains confident of achieving EBITDA margin of 19.5-20% in FY22.

  • Trade Generics constituted ~20% of domestic sales in FY21.

  • The company is witnessing structural cost savings in DF on account of increased virtual marketing and promotion of new launches.

  • The effective tax rate would be 13-14% in FY22.

4 Likes
40

Hi,

Alkem Laboratories gets two 483 observations from USFDA for St Louis-based formulation plant
It notifies the company’s management of objectionable conditions at the facility.
Some days back Lupin also got observations

How to know the details of the observations?

Thanks,
Deb

2 Likes
42

Hi,

Key highlights of Q1FY22 financial performance
• Total Revenue from Operations was~ 27,314 million, year-on-year growth of 37.1%
o India sales were~ 19,097 million, year-on-year growth of 65.3%
o International sales were~ 7,903 million, year-on-year growth of 0.6%
• Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) was ~ 5,929 million,
resulting in EBITDA margin of 21.7% vs. 26.2% in Q1FY21. EBITDA grew by 13.6% YoY
• Profit before tax (PBT) was~ 5,561 million, a growth of 12.9% compared to Q1FY21
• Net Profit (after Minority Interest) was~ 4,681 million, year-on-year growth of 10.9%

Domestic sales were good however US sales for the quarter was~ 6,043 million, recording a year-on-year decline of 9.3%

R&D Investments

During the quarter, the Company filed 2 abbreviated new drug applications (ANDAs) with the US FDA
and received 5 final approvals.
As on June 30, 2021, the Company filed a total of 152 ANDAs and 2 new drug applications (NDA) with
the US FDA. Of these, it has received approvals for 112 ANDAs (including 15 tentative approvals)
and 2 NDAs.

Thanks,
Deb

2 Likes
44

Hi,

The quarterly results are out.Net Profit (after Minority Interest) was ₹ 5,443 million, year-on-year growth of 15.3%.Indian business grew by 25%…on expected lines as covid effect is waning and its acute portfolio started to show good results.

For Details

.

Thanks,
Deb

45

Alkem Lab results - india contribution and international ones are doing good… hopefully this will be one of darkhorse…

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In the concall, Management mentioned they will focus on productivity and no significant capex for next couple of years, other than the usual R&D expense. Chronic segment continues > 20% growth but current pain is price deflation (~20%) in US market. Also, they are testing the waters in CDMO and did not show any enthusiasm. Biosimilars part is only starting now and expected to reach ~500 Cr by 2026 (5% revenue in 4 years). Overall this doesn’t look very exciting and may grow by the usual 10-12% (as per history) and hand-in-hand with IPM growth (similar or higher expected).

What are the growth triggers for Alkem from here that I may have missed?

Invested.

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