Alkem reported yoy revenue grew of 9% in 4QFY17. Domestic revenue grew by 7% yoy to Rs856cr while exports grew by 14.5% to Rs385cr. US revenue grew by 19.4% yoy to Rs291cr. Other exports were flat at Rs95cr. Domestic business contributed 69% of the total revenue during the quarter. Exports mix remains unchanged (vs. 3QFY17), with US contribution remaining at 23% of total revenues in 4QFY17.
Gross margins declined by ~35bps on qoq basis but improved by 67bps on yoy basis. EBITDA declined by 4.2% yoy at Rs149cr vs. Rs156r in 4QFY16. EBITDA margins were at 11.9% vs. 13.6% in 4QFY16 and 18.1% in 3QFY17. The decline in EBITDA margins was largely on account of higher employee cost and increased R&D expenditure. PAT was at Rs137cr in 4QFY17 showing a yoy growth of 58.6%, due to the lower tax in the quarter.
The company is expected to witness improvement in its return ratios owing to the rising profitability of US business. Moreover Alkem’s all manufacturing facilities are current with USFDA which gives confidence that company will deliver strong results over next two years. Considering these factors, we rate Alkem Buy with price target of Rs2,161 based on 21.5x of FY19E EPS

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