Alkem Labs a top buy on Q2 earnings, margin expansion

IIFL said the company's operating margin should expand by 100-150 basis points per annum.

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Investec Securities has maintained a hold recommendation on the company, mainly because valuations at 22 times on FY21 estimates appear rich.
Mumbai: Several brokerage firms have raised target price on Alkem Laboratories by 4-10 per cent as its September quarter earnings beat market expectations.

Ambit Capital, Anand Rathi, Motilal Oswal, Nomura and IIFL increased target price on the stock while maintaining buy ratings.

Alkem Laboratories on Monday reported a 46.12 per cent increase in consolidated net profit at Rs 380.52 crore in the second quarter ended September.


Consolidated revenue from operations during the quarter under review stood at Rs 2264 crore compared to Rs 1918.9 crore in the same quarter a year ago, translating into a growth of 18 per cent. This growth in the India business and expansion of 100 basis points in operating margin helped the company report a strong quarter.
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IIFL said the company's operating margin should expand by 100-150 basis points per annum.

“Consolidation of the domestic field force would help Alkem improve sales rep productivity in its India business over the next 2-3 years. This along with company’s cost optimisation efforts in API (active pharmaceutical ingredients) procurement, manufacturing overheads and working capital, etc. would help improve profitability,” said IIFL.
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Investec Securities has maintained a hold recommendation on the company, mainly because valuations at 22 times on FY21 estimates appear rich.

Nomura, however, finds valuation of Alkem attractive. “Based on consensus estimates, the stock is trading at 21.9 times year-forward earnings, marginally lower than the three-year average of 22.4 times. We think Alkem’s current valuation multiples are attractive as we expect high-teen earnings growth and net cash balance sheet,” said the Japanese firm.

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