Alkem Laboratories export momentum and domestic revival offset by rising biosimilar costs

Investment View and Valuation

In its May 28, 2026 results update, Motilal Oswal Financial Services Limited retained its Neutral rating on Alkem Laboratories. The broker views the FY26 finish positively, supported by a revival in domestic formulations and sustained international growth, but expects the earnings-growth trajectory to moderate over the next two years as investment and operating costs rise.

Motilal Oswal values Alkem Laboratories at 28 times 12-month forward earnings to derive a target price of Rs 5,840, compared with the CMP of Rs 5,452. The stock was trading at 29 times FY27E earnings and 26 times FY28E earnings. These valuations, together with relatively stable expected earnings over FY26-28, underpin the Neutral stance.

Q4 FY26 Financial Performance

Alkem Laboratories delivered a better-than-expected Q4 FY26. Consolidated revenue grew 14.6 per cent year on year to Rs 3,603 crore, exceeding Motilal Oswal's estimate by 4 per cent. EBITDA rose 32.2 per cent year on year to Rs 517 crore, a 6 per cent beat to estimate, while adjusted profit after tax increased 48.2 per cent to Rs 453 crore, 16 per cent above the broker's forecast.

Gross margin expanded 605 basis points year on year to 65.4 per cent, while EBITDA margin expanded 190 basis points to 14.4 per cent. However, higher other expenses and research and development costs, which increased by 265 basis points and 130 basis points respectively as a proportion of sales, moderated the benefit of the stronger gross margin. Q4 included an exceptional charge of Rs 135 crore, including impairment of investments, the incremental impact of labour-code changes and reversal of impairment loss.

FY26 Domestic Formulations Performance

For FY26, Alkem Laboratories reported revenue growth of 13.5 per cent, EBITDA growth of 19.6 per cent and adjusted profit after tax growth of 17.8 per cent. India formulations grew 9.7 per cent to Rs 9,851 crore, contributing about 67.8 per cent of sales.

Alkem outperformed the Indian pharmaceutical market in six therapies: dermatology, gastro, pain, vitamins-minerals-nutrients, respiratory and anti-diabetic products. Acute and chronic segments grew 10.0 per cent and 16.1 per cent respectively, ahead of industry growth of 7.7 per cent and 13.6 per cent. Management said its Semaglutide launch in India had achieved an 11 per cent market share. Trade-generics growth remained muted at 4.3 per cent on an annualised basis, with management prioritising profitability.

International Growth and Product Pipeline

International growth was the principal Q4 driver. The international business grew 26 per cent year on year to Rs 1,222 crore, including US generics sales growth of 26 per cent to Rs 768 crore and ex-US growth of 24 per cent to Rs 454 crore.

For FY26, US generics revenue increased 21.4 per cent, while ex-US sales rose 26.6 per cent, supported by broad-based traction in Australia and Germany. Alkem filed eight abbreviated new drug applications and one biologics licence application, received 17 abbreviated new drug application approvals and launched 11 products in FY26.

The US pipeline includes approved generic Tolvaptan, which management expects to launch in September or October 2026 as a limited-competition product. The company also has European approvals for Prolia and Xgeva biosimilars, with a partner for the Prolia biosimilar launch.

Management Guidance and Earnings Outlook

For FY27, management guided for domestic-formulation growth of 100-150 basis points above the Indian pharmaceutical market, higher single-digit US growth in constant currency and higher-teens growth in the rest of the world. It expects FY27 EBITDA margin of 20-21 per cent and an effective tax rate of 27-29 per cent. Management also expects the Occlutech transaction to close within 45-60 days.

Motilal Oswal forecasts revenue CAGR of about 12 per cent over FY26-28, including domestic-formulation sales CAGR of 10.8 per cent to Rs 12,080 crore and international-sales CAGR of about 11 per cent to Rs 5,760 crore. The broker raised FY27 and FY28 earnings estimates by 3 per cent and 5 per cent respectively, reflecting limited-competition US products, a greater Semaglutide opportunity and a lower effective-tax-rate assumption.

Key Offsets and Risks to Growth

• Operational costs associated with US biosimilars.
• Investment required to improve Occlutech's growth prospects.
• Higher research and development spending for product filings.
• An increase in the tax rate from 18 per cent in FY26 to 27-28 per cent in FY27.

Motilal Oswal expects adjusted earnings per share to decline 12.8 per cent in FY27 before increasing 12.9 per cent in FY28. Return ratios are also expected to moderate.