Alkem Laboratories: Good times ahead?

“This growth was primarily fueled by strong performance of our business in international markets wherein we have crossed Rs.1000 Crores for the quarter for the first time. Several key factors including the softening of select raw material prices, a favourable currency impact, easing of freight costs and the successful implementation of cost optimization efforts has led to better operational performance resulting in an EBITDA margin of 13.1% for the quarter. We remain focused on optimising our operations and driving profitability for sustained long term success. The quarter also witnessed good cash generation resulting in robust cash position of Rs.2430 Crores. Coming to India business, we remain highly optimistic about our continued progress and firmly believe that we are well positioned to deliver market leading growth as we have always done in the past. Our growth in the chronic therapy segment continues to outperform the market delivering sales of 15.8% year-on-year whereas the industry only grew by 9.9% year-on-year for the quarter.”

– Mr. Sandeep Singh, Managing Director, Alkem Laboratories on Q1FY24 ConCall

Stock Data
Ticker	ALKEM
Exchange	NSE
Industry	PHARMACEUTICAL

Price Performance
Last 5 Days	-1.41%
YTD	+21.74%
Last 12 Months	+20.44%

*As of 05.09.2023

Company Description:

Alkem Laboratories Ltd is a worldwide Indian pharmaceutical business with its headquarters in Mumbai, Maharashtra, India. It produces and markets pharmaceutical formulations, generic medications, and nutraceuticals both domestically and abroad. The company has 21 production sites spread across several cities in India and the US. The business model of Alkem Laboratories includes developing, manufacturing, and marketing high-quality pharmaceutical products across all major therapeutic segments. It has more than 800+ brands out of which 12 brands have annual sales of more than Rs 1 crores. 

Financial Results:

Alkem Laboratories Ltd reported Revenues for Q1FY24 of ₹2,968.00 Crores up from ₹2,576.00 Crore year on year, a rise of 15.22%.

Total Expenses for Q1FY24 of ₹2,681.00 Crores up from ₹2,475.00 Crores year on year, a rise of 8.32%.

Consolidated Net Profit of ₹288.00 Crores up 119.85% from  ₹131.00 Crores in the same quarter of the previous year.

The Earnings per Share is ₹23.98, up 124.53% from ₹10.68 in the same quarter of the previous year.

Key Weaknesses:

Commoditization of the product segment: The biggest challenge for Alkem Laboratories Ltd and other players in the industry is the increasing commoditization of the products in the Healthcare industry.

Saturation in urban market and stagnation in the rural markets: For Alkem Laboratories Ltd this trend is an ongoing challenge in the Biotechnology & Drugs segment. One of the reasons is that the adoption of products is slow in the rural market.

High price erosion: Sales from the US market witnessed degrowth in fiscal 2022 because of high price erosion. This trend has been hurting the Indian Pharmaceutical industry in recent times. 

Surge in prices of key starting materials, active pharmaceutical ingredients, freight cost: Operating margin declined to 19.4% in fiscal 2022 from 22.5% in fiscal 2021, mainly on account surge in prices of key starting materials, active pharmaceutical ingredients, freight cost and revival in marketing and selling expenses. Although momentary relief has been signalled by the management, the industry has yet to figure a way past it.

Key Strengths:

Dominant market position: In the domestic market for acute therapeutic segment the firm has proven itself to be among the dominant players. For example, in 2006, Alkem’s anti-infective drug Taxim became the first anti-infective drug in the Indian pharmaceutical industry to cross 1,000 million in terms of domestic sales in India.

Strong Product Portfolio: The firm possesses a strong product portfolio catering to multiple therapeutic segments, accredited manufacturing facilities with well-equipped R&D facilities, and a well-established marketing network. For instance, Alkem set up its research and development facility for ANDA development at Taloja in 20032. Alkem Laboratories had a wide range of pharmaceutical products across various therapeutic categories, including anti-infectives, gastro-intestinal, central nervous system, cardiovascular, anti-diabetic, and more. This diversity helped the company mitigate risks associated with dependence on a single product.

Strong R&D Capabilities: The company invested in research and development to discover and develop new drugs, formulations, and generic versions of existing medications. Strong R&D capabilities allowed Alkem to introduce new products to the market and enhance its existing offerings.

Global Presence: Alkem Laboratories expanded its presence in international markets, exporting its products to over 70 countries. This global footprint helped the company tap into growing pharmaceutical markets worldwide.

Quality Assurance: Alkem Laboratories emphasised quality control and assurance in its manufacturing processes. The company adhered to stringent quality standards and regulatory compliance, ensuring the safety and efficacy of its products.

Cost-Efficient Operations: Efficiency in manufacturing and supply chain operations allowed Alkem to produce pharmaceuticals at competitive prices. This cost-efficiency was particularly important in the generic drug segment.