Alkem Laboratories – Pharma Company With 800 Brands

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Introduction

Alkem Laboratories is India’s 5th Largest pharmaceutical company with more than 800 brands across 8 therapies segments.

Key facts about this company are as below:

Key Facts About Alkem Laboratories

In this article, we shall analyze this company from a medium to long term investment point of view.

Background

In 1953, Mr. Samprada Singh started a medicine shop at Patna. After 6 years a pharma distribution co was found. He wanted to do the distribution for Aristo Labs, hence he incorporated Alkem Laboratories in 1973 with younger brother Mr. Basudeo Singh.

History of Alkem Laboratories

Business Model of Alkem Laboratories

As of June 30, 2020, its overall ranking has decreased to 7 from 5

Alkem owns 10 Brands with annual sales of more than Rs 1 billion (Rs 100 cr+). The details of the same are below:

Top 10 Brands of Alkem Laboratories

Revenue Mix

Alkem Laboratories is a dominant domestic player with a Growing US market presence 

Domestic Market

Domestic Market of Alkem Laboratories

The key point to note is that Alkem key segments namely AI, GI, VNS, Pain/Analgesia has been growing faster than the overall IPM.

Also Read on FinMedium:  ­­How Does Pharma Sector Work - Part 2

Alkem has generated a CAGR of 15% in the past 5 years in the domestic market.

If we compare year wise growth rate also then it has beaten IPM CAGR handsomely as evident from the chart below:

Alkem has grown at 15% CAGR in India while IPM has grown at 9% CAGR during FY15-20

Domestic Mix: Alkem portfolio

• Within India business, chronic therapies have been preferred over acute for better growth and profitability.

• Covid has driven the adoption of e-pharmacies. E-pharmacies (Reliance-Netmeds, Amazon)  may dent the ability of companies to take price hikes in chronic portfolios

• We expect the profitability of Acute therapies to sustain

US Market

In the US, the off-patent market is stated to grow:

However, the cost of filing ANDA has also risen significantly in the past 5 years:

While sales per marketed ANDA dwindles for most of its peer, Alkem has generated sustainable and growing revenue per marketed ANDA over the past 5 years, indicating a strong market presence in its key US market.

ALKEM: USFDA Inspection Report

All the USFDA sites have received EIR without much ado about it

Financial Analysis

D:E is comfortable

Alkem ROCE has increased in the past 6 years while most of the peers ROCE decreased during the same time.

Cash Flow Analysis

CFO increasing but not consistent indicating some cash flow weakness

CFO/EBITDA is less than satisfactory (i.e. 0.80) Corroborates with above-mentioned CFO conclusion

Catalysts

Valuation

Historical PE suggests that stock is available at a moderate discount due to sluggish sales in Acute therapies due to less OPDs in Domestic Formulation

 

Key Investment Risks

Read the exclusive research reports on Indian Companies here.

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Amitabh Vatsya
Amitabh Vatsya is an active Investment Vlogger (http://youtube.com/c/Sadhansimplified) | Loves to share his ideas at http://wealthsutra.wordpress.com | Follow him @amitabhvatsya
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