Alkem Laboratories is a Mumbai based pharma company engaged in
manufacturing and marketing of generic drugs, APIs and neutraceutical products.
Company sells its drugs in India and ~50 countries including the US. It has 16
manufacturing facilities of which 14 are in India and two in the USA. The stock at the CMP of Rs1,620 is available at P/E of
15.5x of FY19E EPS of Rs105, which is at ~15% discount to average P/E (18.4x) of
the peer group. In our view this discount is unwarranted considering 1) Strong
earnings momentum (CAGR of 22.3% in PAT from FY16-FY19E vs. CAGR of
18.3% from FY11-FY16), 2) Improving RoE (average 21.5% RoE from FY17EFY19E)
and 3) Increasing ANDA pipeline and near term launches in the US. We
rate Alkem ‘Buy’ with a price target of Rs1,989 (19.0x of FY19E earnings).

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