ALKEM - Alkem Laboratories Limited Share Price

In the Q4 FY2025 earnings call, Alkem Laboratories Limited management provided an optimistic outlook, emphasizing robust growth particularly in the domestic market. The performance highlights include total revenue from operations reaching Rs. 31,438 million, representing a 7.1% year-over-year (YOY) growth. India sales accounted for Rs. 21,355 million with a YOY increase of 8.1%, while international business sales, excluding the Americas, reached Rs. 9,747 million, up 7.2% YOY. The net profit stood at Rs. 3,059 million, reflecting a growth of 4.2%, and EBITDA for the fiscal year grew by 11.9% to Rs. 25,122 million, leading to an EBITDA margin expansion from 17.7% to 19.4%.

Management noted the following key forward-looking points:

1. EBITDA Margin Guidance: For FY2026, the management expects EBITDA margins to stabilize at approximately 19.5%, influenced by ongoing investments in R&D and strategic growth initiatives despite operating leverage.
2. Domestic Market Outlook: The growth trajectory for the domestic business is expected to continue, with management targeting to outperform market growth by at least 100 basis points. The market growth for FY2026 is projected between 7% to 8%.
3. International Business Growth: Aiming for mid-single-digit growth in the US market, Alkem plans to launch approximately 5 to 6 new products in FY2026, including high-value launches like Entresto.
4. R&D Expenditure: Total R&D expenses for the upcoming fiscal year is anticipated to increase to around 5% of revenue, reflecting investments in complex products and new markets.
5. CAPEX Plans: For FY2026, total CAPEX is forecasted in the range of Rs. 700 crores to Rs. 750 crores.

Overall, Alkem Laboratories expresses confidence in its strategic direction, focusing on sustained growth and shareholder value creation amidst operational improvements and market expansion efforts.

Here are the major questions asked in the Q&A section of the earnings transcript, along with detailed answers:

1. Question: "In India, some of the bigger segments, anti-infectives, cardiac, anti-diabetic, etc., saw lower growth in Q4. Can you explain which segments are seeing weakness, and how should we look at India business growth for FY26?"

   Answer: In FY'25, we've actually outperformed in annual performance for key therapies like GI and anti-diabetic. The anti-infective sector has three components"”oral solids, liquids, and injectables. While oral forms performed well, injectables faced challenges from mixed B2B and retail data. Overall, Q4's 8.1% growth demonstrates strong performance, and we are optimistic about continuing this trajectory in FY'26.

2. Question: "What's the outlook for EBITDA margins in FY26?"

   Answer: For FY'26, I expect EBITDA margins to stabilize around 19.5%, similar to our performance in FY'25. We plan to invest in growth initiatives, particularly in R&D, which will support our development, but overall margins should remain steady due to operational leverage.

3. Question: "Can you share an update on the biosimilar CDMO plant? What is the investment and timeline for completion?"

   Answer: The biosimilar CDMO project is on track for operational readiness by Q2 FY'26, with a cumulative CAPEX of around Rs. 550 crores anticipated. We've already allocated Rs. 500 crores last year, and we expect to start generating revenues this year.

4. Question: "Why have gross margins decreased in Q4, and how do you foresee them annually for the upcoming year?"

   Answer: Our Q4 gross margin dipped due to reduced production levels and a past settlement fee from a product sale. For FY'26, I anticipate gross margins to be around 63% or slightly better, despite potential moderation from a normalizing acute business.

5. Question: "What are the growth expectations for the trade generic segment?"

   Answer: The trade generic segment saw a mid-single-digit growth rate in FY'25, around 6-7%. As the market is competitive and primarily driven by acute segments, we expect similar growth moving forward, focusing on enhancing overall margins close to corporate levels in this segment.

6. Question: "Could you update the status of your US presence, specifically product launches like Entresto?"

   Answer: The Entresto launch is subject to ongoing litigation. The earliest potential launch could be around July, dependent on the legal resolution. Overall, my expectation for US business growth remains mid-single-digit for FY'26 as we stabilize supply and inventory.

7. Question: "What is your outlook for the Indian market's growth rates?"

   Answer: I see next year's market growth stabilizing around 7-8% as the industry navigates pricing pressures from the NLEM portfolio. Although volume growth may slightly improve, the overall scenario is influenced by inflation and regulatory aspects.

8. Question: "Can you provide guidance on the tax rate for FY'26 and FY'27?"

   Answer: For FY'26, the tax rate is expected to be in the 13-15% range. Once we deplete our MAT credit in FY'27, the rate will rise to approximately 35-38%, because we will be back to regular tax obligations without offsetting credits.

Feel free to ask for more details or clarity on any specific point!