Mumbai-based drug maker Alkem Laboratories Ltd. may be the best bet to play the high profit and steady growth Indian pharmaceutical industry, according to brokerage house Credit Suisse.
The broking firm initiated coverage on the company's stock with an ‘Outperform' rating and a target price of Rs 2,150, implying a potential upside of 14.9 percent from the Tuesday's closing price.
It expects the drug maker's margins to expand by about 200 basis points over FY17-20 estimates, driven by the scale in chronic and margin improvement at India subsidiaries.
Alkem's strength is the ability to create power brands, which is substantiated by Alkem having five brands in top 50. Product selection has been good with Alkem choosing either fast-growing molecules or differentiated products.Credit Suisse Research Report
It also expects that the company will recover in the current first half after its shares declined over 15 percent in the past first six months due to sales and margins being impacted by demonetisation and GST destocking, the research report stated.
Further, Credit Suisse expects that the pharmaceutical company to trade at a premium to the sector with the sustainable growth of 18-20 percent earnings per share (EPS) compounded annual growth rate (CAGR) and higher return. It also expects return on capital employed (ROCE) to improve by 400 basis points by the financial year 2019-20 (FY20).
However, conversion of Indian market into generic, competition in Mycophenolate suspension; and capping of trade margins are the key risks to the company, Credit Suisse said.
Also Read: Credit Suisse Expects Godrej Consumer To Outperform In FY18
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