India sales were healthy in the quarter and were up 17% YoY. As per management, Alkem could get good traction in 1QFY22 for Vitamins/Minerals, Antacids and Antibiotics business, which is now back to normal levels.
Alkem’s 4QFY21 revenue was in line with our estimates; however EBITDA/PAT missed estimates by 27%/20%. US business was hit by extra-ordinary inventory write-offs that led to lower revenue and higher costs. India business remained healthy in 4QFY21 and management indicated that 1QFY22 would get a boost on account of Covid. Our FY22/23 EPS estimates change by -6%/-1%. Price target changes from Rs 3,392 to Rs 3,361. Maintain ‘buy’.
US business takes a hit, to recover from hereon led by new product launches: US revenue was down 7% QoQ. Management attributed the following reasons for revenue decline: 1) One of the top products in the US had lower sales and hence had to take inventory write-off 2) Winter products had lower sales in the quarter 3) Product launches were done at quarter end 4) Market share erosion in a few products. The inventory write-offs worth Rs 0.8 billion led to US business becoming EBITDA negative in 4QFY21 and hitting company gross margins by 365bps. We believe US hit was a one-off event and will pick up from hereon largely led by new product launches. In FY21, Alkem received 19 ANDA approvals but launched only 12 products, which makes us believe that product launch momentum will be healthy next year and that could support growth.
India to get Covid boost; year to remain volatile: India sales were healthy in the quarter and were up 17% YoY. As per management, Alkem could get good traction in 1QFY22 for Vitamins/Minerals, Antacids and Antibiotics business, which is now back to normal levels. Antibiotics use has been primarily led by pneumonia caused by Covid, which wasn’t the case in the first wave. The company guided for a mid-teens growth for domestic business in FY22.
Though hospital injectable space has been hit as elective surgeries have again remained subdued, the decline has been more than offset by strong OPD volumes. In our view, India business will witness volatility due to covid traction in first half and seasonal impacts in later part of the year. At company level, we build in Revenue/EPS CAGR of 11%/8% for FY21-23E.