Alkem Labs Q2 Results Review - Revenue Inline; Margins Under Pressure: Nirmal Bang

Nirmal Bang Report

Alkem Laboratories Ltd.’s Q2 FY23 revenue was in line with estimate while Ebitda margin remained under pressure due to elevated cost inflation and U.S. pricing pressure.

Revenue grew by 10% YoY to Rs 30.8 billion (our estimate: Rs 30 billion) mainly due to strong growth in domestic formulations.

Domestic formulations business grew by 13% YoY to Rs 22.2 billion mainly due to strong growth across key segments. U.S. revenue grew by 6.4% QoQ, but declined by 7.9% YoY to $76 million mainly due to more than 15% price erosion in the base business.

Ebitda margin remained under pressure, contracting by 756 bps YoY to 14.7% as against our estimate of 17%. The management has cut Ebitda margin guidance for FY23 by 100 bps to 15- 15.5%.

It has also implemented cost rationalisation measures, which will reduce operational cost by Rs 2.25 billion in FY24. Adjusted profit after tax declined by 39.2% YoY to Rs 3.3 billion mainly due to a weak operational performance.

We are positive on Alkem Labs considering the higher proportion of India sales with a consistent track-record of outperformance in the domestic market as well as potential for operating leverage benefits.

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