Dear Reader,
We recommended "Alkem Labs" around 1020 Rs and now it is currently trading at 1820 Rs which translates into gains of more than 80% in 9 months.
Alkem is India's fifth largest pharma company in terms of domestic sales, having 5 brands in top 50 in the Indian pharma market such as Clavam, Taxim, Taxim O, Pan, Pan D, Alkem Laboratories makes branded generics, generics, APIs and nutraceuticals for domestic and 55 international markets, with latter accounting for one-fourth of revenues. Internationally, US is a key market, accounting for 19% of total revenues.
Company is focused on the acute therapeutic segments of anti-infectives, gastro intestinals, pain and analgesics, vitamins, minerals, nutrients, with a portfolio of over 700 brands. It has a strong market share of over 11% in anti-infectives, being consistently ranked number one in that segment, which also happens to be the largest therapeutic area in Indian pharma market. In other large segments of gastro intestinals and pain/analgesics, company ranks number three.
Having 16 manufacturing facilities (14 at 5 locations in India and 2 in US), its domestic distribution reach is very strong comprising field force of 5,745 medical representatives (as of 31-10-15), with 7 in 10 domestic prescribers prescribing company's drugs. Having spent 4.5% of FY15 revenue on R&D, company has 2 R&D centers each in India and US and employs 480 scientists.
During FY15, consolidated EBITDA (excluding other income) grew 19% YoY to Rs. 487 crore, as revenue from operations jumped 21% YoY to Rs. 3,789 crore, clocking EBITDA margin of 12.9%. Net profit, at Rs. 463 crore, was higher by 6% YoY in FY15, leading to an EPS of Rs. 38.7. Since the company enjoys many tax breaks/holidays for its manufacturing facilities and R&D investments, effective tax rates is low at 10.5% for FY15, and will continue to be in low teens for the next couple of years.
Financial performance during first half of FY16 was very strong, with revenue from operations rising 36% YoY to Rs. 2,570 crore and EBITDA margin strengthening to 17.8%, on EBITDA of Rs. 460 crore. Net profit for H1FY16 stood at Rs. 431 crore, translating into an EPS of Rs. 36.1, on equity of Rs. 23.91 crore, of face value Rs. 2 each. Thus, H1FY16 has nearly achieved results of the whole of FY15.
As of 30-9-15, net worth of this closely-held company stands at Rs. 3,400 crore, while gross debt is at Rs. 1,115 crore. Excluding cash and equivalents of Rs. 749 crore, net debt is only Rs. 366 crore, which is very low. Current promoter stake of 70.87% will shrink to 66.23% post IPO, whereas 17 individual investors owning 29.13% stake currently, will part sell, reducing their combined holding to 23.02%, post listing.
At the upper end of the price band of Rs. 1,050 per share, company's market cap will be Rs. 12,550 crore and enterprise value Rs. 12,900 crore. Based on annualized H1FY16 EBITDA of approximately Rs. 925 crore, EV/EBITDA multiple stands at 14 times, for the current year. On revenue run-rate of over Rs. 5,000 crore, EV/Sales multiple is 2.5, whereas the PE multiple is 15 times, on expected EPS of about Rs. 68 for FY16. This appears attractive, given the company's presence in high growth markets of India and US, portfolio of strong brands coupled with distribution strengths.
