Analyst Concall
Alkem Labs cuts FY25 sales growth guidance as US ops slow
This story was originally published at 20:57 IST on 13 November 2024
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--Alkem Labs: US business hit by price erosion, fall in volume Apr-Sept
--CONTEXT: Alkem Labs management comments in post-earnings analyst call
--Alkem Labs: US operations weak in Apr-Sept on supply chain disruptions
--Alkem Labs: Expect US operations to do better in Oct-Mar
--Alkem Labs: See profitability of US operations improving in Oct-Mar
--Alkem Labs: India sales growth seen up 8-9% in FY25
--Alkem Labs: See sales growing in mid-single digit in FY25
--Alkem Labs: See FY25 EBITDA margin improving 100 bps to 18.5-19%
--Alkem Labs: Co had cash reserve of INR 42.2 bln as of Sept. 30
--Alkem Labs: See better volume growth in overall market from Jan-Mar
--Alkem Labs: Commercialised seven biosimilars till date in India
--Alkem Labs: Working to improve margins by 100 bps every year
--Alkem Labs: Increased inventory in US to drive growth in coming qtrs
By Aman Aryan and Narayana Krishna
MUMBAI/HYDERABAD – Alkem Laboratories Ltd. has cut its overall sales growth guidance for 2024-45 (Apr-Mar) to mid-single digits from 10%, while maintaining its guidance from Indian operations at 8-9%, the company's management said in a post-earnings conference call. The cut in overall guidance is due to subdued performance of the US business, the management said.
A back-of-the-envelope calculation shows the company has to post a 12% growth in domestic sales in Oct-Mar to meet the higher-end of the domestic annual sales growth guidance. In Apr-Sept, the company's domestic sales grew 6% on year. In FY24, the company had posted 9.2% growth in its consolidated revenue.
Supply chain disruptions and price erosion have led to fall in the company's sales volume in the US, the management said. The company's sales volume fell 18.7% and prices eroded by 6% in the US during the September quarter. However, the management expects the US business to perform better in the second half of the current financial year.
On the profitability front, the company said they have already performed better in the US business in Apr-Sept compared to the year-ago period and will continue to improve in the coming half of the year.
Alkem Labs expects the US sales volume to improve in the coming quarters as it has augmented its inventory. However, the company does not want to be aggressive in pricing as it will erode its margins. The management said the company's back orders have come down to 2% in the US from 38% at the beginning of the current financial year. Despite boosting the inventory position, the company said there were certain orders that it was not able to supply.
The company plans to improve its overall earnings before interest, tax, depreciation, and amortisation margin by 100 basis points every year. The company sees its EBITDA margin in FY25 up about 100 basis points at 18.5-19%. The company's EBITDA margin in Apr-Sept was 21.1%, up from 17.7% a year ago. In FY24, the company's EBITDA margin was 17.7%.
The company also expects its overall volumes, especially that of its acute therapy vertical, to improve from Jan-Mar. In the case of acute therapy vertical, the management said there had been a lot of channel buying during COVID-19, and it will take time to get normalised. The management also said that lack of increase in prices had affected growth of the vertical as "the price is a lever of growth".
On slower growth in domestic sales of anti-infectives, the company said the market is returning to normal from the time of the COVID-19 pandemic when the market consolidated with the top brands and a lot of smaller players went out of the market. The company reported a mere 2.5% growth in its anti-infectives sales in India in the September quarter, against a growth of 6.8% by this segment of the industry. On biosimilars, the management said the company has commercialised seven such drugs in India and plans to launch 2-3 products in the global market in the long-term.
The company's net cash rose by INR 4 billion to INR 42.2 billion as on Sept. 30, its net cash flow almost doubled in the last 18 months, Alkem Labs said.
Commenting on the bankruptcy proceedings against the company's partner Exactech in the US, the management said it does not see any operational challenge. The company said Alkem Medtech had signed a "licencing technical know-how transfer agreement" with a US-based hip and knee replacement company, Exactech. Despite the bankruptcy proceedings against Exactech, Alkem Labs said the two will launch the product in Apr-Jun or Jul-Sept of FY26.
Alkem Labs Wednesday reported a consolidated net profit of INR 6.89 billion for the September quarter, up 11% from the year-ago quarter. Revenue for the quarter was INR 34.15 billion, marginally down from a year ago. On the National Stock Exchange, shares of the company closed at INR 5,571.20, up 1.2%. End
Edited by Ashish Shirke
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