Investec upgraded its rating on Alkem Labs to “buy” from its earlier rating of “sell”, and raised its price target to ₹6,400 from ₹5,500 earlier. The revised price target implies an upside potential of 19% from last Friday’s closing levels.
Five Reasons Why Investec Upgraded Alkem Laboratories:
Investec cited inexpensive valuations of the stock as a key factor behind the upgrade. Alkem Laboratories is currently trading at 24 times its financial year 2028 estimated earnings, compared to its other India-focused peers, whose average valuation multiple stood at 38 times.
The brokerage also said that the drugmaker has underperformed the Nifty Pharma Index by over 20% during the last six months, primarily due to the departure of its CEO Vikas Gupta, who quit in April.
Although the CEO hunt remains a factor, Alkem Labs’ June quarter performance was robust, with 11% sales growth and over 20% growth in its Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). Additioanlly, despite the cost pressures, the management has left its growth guidance for financial year 2027 unchanged, Investec noted.
Investec is also “enthused” by Alkem’s guidance of its India business growing in double-digits, in comparison to the historical growth rate of 6% to 9%.
It also expects its US business to grow mid-to-high single-digit, healthy double-digit growth for ROW, and the CDMO business to break even.
Investec also cited a strong increase in Gross Profit Margin (GPM) as a factor for its upgrade.
The company’s EBITDA margin is expected to improve by more than 2.5% points both compared with last year and compared with the previous quarter, Investec has projected.
Investec Upgrades Alkem, But Others Cautious
JPMorgan remains “neutral” on Alkem Laboratories with a price target of ₹6,100. The brokerage sees limited earnings momentum and fewer near-term drivers to re-rate the drugmaker.
It also said that Alkem’s India business growth of 10% was “underwhelming”, while a subdued performance from its trade generics business kept a lid on the company’s growth.
While JPMorgan expects the trade generics to recover over the upcoming quarters, structural constraints are likely to cap growth in the high-single-digits range, implying that the India business growth could also remain well below peers.
Alkem Labs’ profitability is also likely to be weighed by newer platforms, with Occlutech being margin dilutive over the next few years, while Enzene should take 4-5 quarters to reach breakeven, according to JPMorgan’s note.
Macquarie retained its “underperform” rating on Alkem Labs with a price target of ₹4,900, which is among the lowest on the street for the stock.
STOCK CHECK
22 analysts have coverage on Alkem Laboratories, of which 13 have a “buy” rating, six say “hold” and three have a “sell” rating on the stock.
Shares of Alkem Laboratories are trading 1.1% higher on Monday at ₹5,428.5. The stock has not done much this year, still down 0.6% on a year-to-date basis.
