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Motilal Oswal
Alkem Laboratories (Buy)
CMP: ₹1,750.9
Target: ₹2,170
Alkem’s 9MFY19 performance was subdued due to a course correction and weak season in domestic formulations (DF). But, we remain positive on Alkem due to its superior execution in DF and US generics, thereby driving 23 per cent earnings CAGR over FY19-21E.
The price correction of the past six months provides a good buying opportunity in Alkem. Also, the company has compliance and healthy ANDA pipeline in place; improved profitability is expected from its US generics business. Its DF business should also fare well due to increased focus on chronic therapies and a robust trade generics business.
We have reduced Alkem’s P/E multiple from 24x to 22x to factor in US generics’ headwinds and the gradual growth downtrend in the DF industry to arrive at TP of ₹2,170.
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