Buy Alkem Laboraties; target of Rs 2850: Motilal Oswal

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Motilal Oswal 's research report on Alkem Laboraties

ALKEM ended FY20 on strong note - earnings were up 50% YoY, led by healthy growth in the US (a key market), domestic formulation (DF) and improved operating leverage. While the COVID-19 pandemic could affect DF growth in the near term and subsequently impact earnings, we believe that ALKEM has enough levers (new launches/increased market share in DF/the US and minimal regulatory risk) to strengthen its earnings trajectory.

Outlook

We cut our EPS estimates by 6%/4% for FY21/FY22E to factor in the near-term weakness in the DF segment. Accordingly, we revise our price target to INR2,850 on 22x 12-month forward earnings. We remain positive on ALKEM due to robust ANDA pipeline/minimal regulatory risk in the US and sustained outperformance in DF. Maintain Buy.

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