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Alkem Ltd: Margins Improve Despite Pricing Pressures - Views on News from Equitymaster
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  • Oct 24, 2016 - Alkem Ltd: Margins Improve Despite Pricing Pressures

Alkem Ltd: Margins Improve Despite Pricing Pressures
Oct 24, 2016

Alkem has announced its 1QFY16 and full year results. The company has reported 20.3% YoY growth in net sales and 41.6% YoY growth in the net profits for the quarter. Here is our analysis of the results.

Performance summary
  • Net sales grow by 20.3% YoY during the quarter, backed by domestic and international segments. The Indian business grew by 22.4% YoY, amidst the challenging environment. The expansion of NLEM list, led to downward revision in some of the key brands. Over and above, WPI induced price cuts too impacted the certain revenues from key brands. Owing to the downward pricing and FDC ban, company's sales have got impacted by 4%-5% for the quarter.

    It is imperative to note, the sharp surge in domestic sales is also due to accounting treatment as the company has moved to IndAS. If one looks into normalized growth, it stands at 16% YoY. This is still higher than the Indian pharma market growth. The company has outperformed the industry growth in various therapies. Some of these include segments such as, anti infectives, gastro intestinal, and pain analgesics.

    The US market (contributing 18% to sales) grew by 11.8% YoY, while other international markets (contributing 6% to sales) grew by 24% YoY. In the US, company has launched three new products (two were own products and one was in licensed), these products were launched at the end of the quarter thus, the actual impact will be seen in the upcoming quarter.
  • In spite of pricing pressures, the operating margins have improved by 1.5%. This was largely attributable to various other cost optimization programs and price increases on other product
  • Net profits were up by 41.6% YoY. The growth was largely attributable to high other income and decline in the interest costs.

    Financial performance: A snapshot
    (Rs m) 1QFY16 1QFY17 Change
    Net sales 11,960 14,393 20.3%
    Other operating income 115 185 60.7%
    Expenditure 10,008 11,868 18.6%
    Operating profit (EBDITA) 2,067 2,711 31.1%
    EBDITA margin (%) 17.1% 18.6%
    Other income 281 475 69.4%
    Interest (net) 225 100 -55.7%
    Depreciation 206 230 11.4%
    Profit before tax 1,917 2,857 49.0%
    Tax 66 229 246.6%
    Profit after tax/(loss) 1,851 2,628 41.9%
    Minority Interest 28 45 62.8%
    Net Profit after Minority Interest 1,824 2,583 41.6%
    Net profit margin (%) 18.3%
    No. of shares (m) 120
    Diluted earnings per share (Rs) 59
    Price to earnings ratio (x)* 28.11

    *based on trailing 12 months earnings and adjusted over exceptional item

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