Alkem Lab — Q1 FY26 earnings call

Call held 12 Aug 2025

Management summary

Alkem Lab reported a strong Q1 FY26, with double-digit revenue and profit growth driven by robust performance in both India and international markets. The company's EBITDA margin expanded to 21.9%, reflecting disciplined strategy execution. While new initiatives like MedTech are expected to incur initial losses, management expressed confidence in their long-term growth potential and maintained full-year guidance despite anticipated higher R&D and opex in later quarters.

Highlights

  • Total revenue grew 11.2% Y-o-Y to INR33,711 million, driven by strong top-line growth across domestic and international markets.

  • EBITDA margin improved to 21.9%, with EBITDA growing 21.4% Y-o-Y to INR7,391 million.

  • Net profit increased by 21.8% Y-o-Y to INR6,643 million, reflecting an improved gross margin and better EBITDA profile.

  • India business outperformed the Indian Pharmaceutical Market (IPM) by 120 basis points, growing 9.7% Y-o-Y against IPM's 8.5%.

  • Commencement of revenue generation from the Alkem MedTech initiative, with positive initial customer response.

Concerns

  • U.S. business experienced a 3-4% Y-o-Y price drop in Q1 FY26, impacting margins.

  • MedTech business is expected to incur losses of INR40-50 crores for FY26 and FY27 before breaking even in FY28.

  • Higher R&D expenses and operational expenditure for new initiatives (like the U.S. biotech plant) are anticipated in Q3 and Q4 FY26, potentially impacting margins in those quarters.

Key financials

  1. Total Revenue 33,711 Mn +11.2%YoY
  2. EBITDA 7,391 Mn +21.4%YoY
  3. EBITDA Margin 21.9%
  4. Net Profit 6,643 Mn +21.8%YoY
  5. R&D Expenses 1,184 Mn
  6. R&D as % of Revenue 3.5%

What they filed

Q1 FY27: revenue up 10.9%, net profit down 22.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,415 3,374 3,144 3,371 4,001 +17%3,737 +11%3,603 +15%3,740 +11%
EBITDA753 759 391 739 921 +22%828 +9%517 +32%766 +4%
Net profit702 641 322 668 779 +11%653 +2%251 −22%521 −22%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
33,194 Mn Total
  • India Sales 22,656 Mn 68.3%
  • U.S. Business 6,982 Mn 21.0%
  • Non-U.S. Business 3,556 Mn 10.7%

Capital allocation

high confidence
  • Capex ₹750 Cr
    • Biotech and CDMO opportunity
    Around INR750 crores. This is what we have said before also. (Nitin Agrawal, page 17) and I think the largest capex at this stage is going behind the biotech and the CDMO opportunity because that business needs that kind of capital. (Vikas Gupta, page 18)
  • M&A Adroit Acquisition · Closed

    Small company, largely domestic play, contributed to overall revenue.

    Contributed around INR15 crores to overall revenue in Q1 FY26.

    Yes. See, Adroit has been a small company. So, there was around INR15 crores overall revenue that we recorded from Adroit, which is in line with our plan when we had acquired that company, and that's largely domestic play. (Vikas Gupta, page 17) and Yes. We completed the acquisition in quarter 1, mid of April, somewhere around mid of April. (Nitin Agrawal, page 17)

Guidance & targets

Profitability

  • Overall Guidance Profitability · FY26 · Medium confidence Maintain current guidance
    I will stay with the guidance that we have issued primarily because it has been just 1 quarter that we have done, though there are no one-offs in this.

    — Vikas Gupta

  • MedTech Breakeven Profitability · FY28 · High confidence Breakeven
    So, we are targeting MedTech business to breakeven in FY '28.

    — Nitin Agrawal

  • MedTech Losses Profitability · FY26, FY27 · High confidence INR40-50 crores
    But for FY '26, FY '27, there may be losses of INR40 crores to INR50 crores on medtech.

    — Nitin Agrawal

R&D

  • R&D Expenses as % of Revenue R&D · Annually · High confidence 4.5% to 5%
    Our overall annual guidance has been within the range of 4.5% to 5%, and I stay put with that.

    — Vikas Gupta

Revenue

  • MedTech Annual Run Rate (ARR) Revenue · by year-end · Medium confidence INR40-50 crores
    on an ARR basis, I think by the end of the year, we should be around INR40 crores, INR50 crores on an annual run rate basis.

    — Vikas Gupta

  • India Business Growth vs. IPM Revenue · Ongoing · High confidence 100-150 basis points faster
    I've always said that we will continue to grow at least 100, 150 basis points faster than how the market is growing. And I maintain that as a trajectory.

    — Vikas Gupta

  • U.S. Business Growth Revenue · Full year · Medium confidence Mid-single-digit to higher single-digit
    I think our guidance was about mid-single-digit kind of growth from U.S. markets. I will maintain at least that growth. But looking at the trends, if everything remains favorable, we may even surpass that. But it will be too early.

    — Vikas Gupta

Margin

  • Gross Margin Margin · Full year · High confidence 64%
    So, we have given a guidance of around 64%. So, we maintain our guidance of 64%...

    — Nitin Agrawal

  • Operational EBITDA Margin Improvement Margin · Every year · High confidence 1% annually
    I've always maintained, if you look at operationally, we would continue to improve at least, say, a 1% kind of improvement on the overall margin profile every year, right?

    — Vikas Gupta

Opex

  • Enzene CDMO Facility Opex Opex · per quarter · High confidence INR50 crores
    On an average, once the facility will be up and running, you can the estimate is around INR50 crores per quarter in INR terms for the U.S. CDMO facility.

    — Nitin Agrawal

  • MedTech Opex Opex · per quarter · High confidence INR25-30 crores
    So, once it will stabilize, the opex will be in the range of, you can say, per quarter, it will be around, say, INR25 crores to INR30 crores.

    — Nitin Agrawal

Tax

  • Effective Tax Rate Tax · Full year · High confidence 13% to 15%
    So full year will be in the same range as you saw in quarter 1. So, there will not be any material change. I think in the beginning of the year, we have given a guidance of 13% to 15%. So, we maintain our guidance, 13% to 15% of tax rate.

    — Nitin Agrawal

What to watch in Q2 FY26

MedTech Revenue Ramp-up

Next quarter (Q2 FY26) and coming quarters
Current INR2.5 crores in Q1 FY26
Target Progress towards INR40-50 crores ARR by year-end

Why it matters

Tracking the growth trajectory of the new MedTech business is crucial for assessing its long-term potential and contribution.

So, see, MedTech business, we've just started. So, our first quarter revenue is around INR2.5 crores, which is very minimal. But we are pretty confident with the way we have started that business. And in the initial months itself, the uptake has been -- the response of customers has been quite positive. So, we are bullish about that strategy and hope to scale it in the coming quarters.

Risks & concerns

  • U.S. Price Erosion

    medium

    U.S. market experienced a 3-4% Y-o-Y price drop in Q1 FY26, which partially offset margin improvements from better mix.

    Management acknowledged

  • Geopolitical Scenario and Tariff Discussions

    medium

    Uncertainty regarding geopolitical scenarios and potential tariffs could impact the U.S. market, though management stated they would adapt as details emerge.

    Management acknowledged

  • Increased Opex from New Initiatives in H2 FY26

    medium

    Higher R&D expenses and operational costs for the U.S. biotech plant, which will become fully operational in Q3/Q4, are expected to impact margins in the latter half of FY26.

    Management acknowledged

  • Initial Losses from MedTech Business

    low

    The new MedTech business is projected to incur losses of INR40-50 crores in FY26 and FY27 before achieving breakeven in FY28.

    Management acknowledged

Q&A highlights

5 direct
FY26 Guidance Revision Partial
But I would say, at this stage, it is just 1 quarter of the year that has gone by. So, I find it a little too early to revise the guidance upward, but I can clearly tell you if the year progresses, the way we are seeing for some more time, then definitely, we would overachieve on the guidance that we have given.

Analyst probed for an upward revision to FY26 guidance given strong Q1, but management chose to maintain current guidance, citing early stage of the year and potential future expenses.

Asked by Kunal Dhamesha

R&D Expenses Phasing Direct
I think it's more about phasing of the expenses. Our overall annual guidance has been within the range of 4.5% to 5%, and I stay put with that. And that is why I'm saying some of the coming quarters, we will -- we may have a higher expense in R&D because if you see our filings trend as well, I think it's loaded more towards in Q4, we do the maximum filings.

Clarified that the lower R&D spend in Q1 (3.5%) is due to phasing, with higher expenses expected in later quarters, aligning with the annual guidance of 4.5-5%.

Asked by Kunal Dhamesha

MedTech Business Contribution and Losses Direct
So, see, MedTech business, we've just started. So, our first quarter revenue is around INR2.5 crores, which is very minimal. But we are pretty confident with the way we have started that business... But for FY '26, FY '27, there may be losses of INR40 crores to INR50 crores on medtech. So, we are targeting MedTech business to breakeven in FY '28.

Provided specific initial revenue (INR2.5 crores), projected annual run rate (INR40-50 crores by year-end), and financial outlook (INR40-50 crores losses in FY26/27, breakeven by FY28) for the new MedTech venture.

Asked by Amlan Jyoti Das

Gross Margin Sustainability Partial
So, we have given a guidance of around 64%. So, we maintain our guidance of 64% because generally, quarter 1, quarter 2, the contribution of domestic business is higher as compared to quarter 3 and quarter 4.

Analyst questioned if the Q1 gross margin (implied higher than 64%) was sustainable, and management reiterated the full-year guidance of 64%, attributing Q1 strength partly to domestic mix.

Asked by Neha Manpuria

Impact of New Initiatives on Q3/Q4 Margins Direct
Second, as we mentioned, the newer initiatives that we have started, especially the U.S. plant on the biotech side, we may have some of the opex that will come up in Q3 and Q4 because that plant will get fully operational by Q3. We will start getting operational from Q3 and may get fully operational by Q4.

Management explained that anticipated higher operational expenses related to the U.S. biotech plant becoming fully operational in Q3/Q4 could temper margin expansion in those quarters, justifying the conservative full-year guidance.

Asked by Neha Manpuria

Capital Allocation for Chronic Business M&A Direct
No, I don't think we are limiting ourselves to ticket size, more to say. We have a good amount of cash on the balance sheet. And if there is a need to leverage, provided we feel that we can add we can create value both strategically as well as in terms of the financials to our overall business, I don't think the ticket size would be a limiting factor for us.

Management clarified their M&A strategy for chronic business, emphasizing strategic value and growth potential over specific ticket sizes, indicating readiness to leverage their strong balance sheet.

Asked by Chirag

U.S. Sales Drivers and Tariff Impact Partial
On the sacubitril/valsartan, we have launched with everyone else as far as the U.S. business is concerned... I think tariff is a very hypothetical question. We all are waiting for what shape it takes. So, I think anything that I comment will be very, very speculative or we will deal with it as and when it comes.

Management confirmed the launch of sacubitril/valsartan in July (Q2 impact) for the U.S. market and addressed the speculative nature of tariff impacts, stating they would adapt as details emerge.

Asked by Rashmi

Staff Cost Increase Direct
Yes, it's a function of, one, the annual increments that we have to give. Second, since the performance in India business is also very good, there is a higher incentive payout that is there. So, if -- rather than looking at just percentage growth, if you look at the percentage to revenue, I think that is fairly -- I would say, similar to what it was in the previous year.

Explained the 15% Y-o-Y increase in staff costs as a combination of annual increments and higher incentive payouts due to strong India business performance, suggesting it's not a new base but rather linked to revenue.

Asked by Gaurav

2 min read 5 chapters

Detailed narrative

Strong Q1 Performance & Growth Drivers

Alkem Laboratories reported a robust start to FY26, with total revenue from operations growing 11.2% year-on-year to INR33,711 million. This growth was fueled by strong performances in both domestic and international markets. India sales increased by 12% to INR22,656 million, while the U.S. business grew 8.8% to INR6,982 million, and non-U.S. business saw a 9.1% rise to INR3,556 million. The company also outperformed the Indian Pharmaceutical Market (IPM) by 120 basis points, achieving 9.7% growth against IPM's 8.5%.

Strategic Focus on New Initiatives & Non-U.S. Markets

The company is strategically accelerating its focus on non-U.S. business segments and new initiatives like Alkem MedTech. The MedTech business commenced revenue generation in Q1 FY26, contributing INR2.5 crores, with an anticipated annual run rate of INR40-50 crores by year-end. While MedTech is expected to incur losses of INR40-50 crores in FY26 and FY27, management targets breakeven by FY28. Additionally, the CDMO facility is expected to be fully operational by Q4 FY26, with an estimated opex of INR50 crores per quarter.

Gross Margin Dynamics & R&D Spend

EBITDA grew significantly by 21.4% year-on-year to INR7,391 million, resulting in an improved EBITDA margin of 21.9%. This was attributed to strong top-line growth and an improved gross margin, partly due to lower API prices and a higher domestic contribution. Despite the strong Q1, management maintained its full-year gross margin guidance of 64%. R&D expenses for the quarter were INR1,184 million, representing 3.5% of total revenue, with management clarifying that the lower Q1 percentage is due to phasing, expecting higher R&D in later quarters to meet the annual guidance of 4.5-5%.

Capital Allocation & M&A Strategy

Alkem's capital allocation for FY26 is planned at around INR750 crores, primarily directed towards biotech and CDMO opportunities. The company completed the acquisition of Adroit in Q1 FY26, which contributed INR15 crores to revenue. Management emphasized that they are not limited by 'ticket size' for M&A, particularly in the chronic segment, and are open to acquisitions that add strategic value and can be grown effectively, leveraging their strong cash reserves.

U.S. Business Outlook & Tariff Uncertainty

The U.S. business grew 8.8% year-on-year to INR6,982 million, despite a 3-4% price erosion in Q1 FY26. The company launched sacubitril/valsartan in July, with its impact expected to be seen in Q2 FY26 results. Management maintained its mid-single-digit to higher single-digit growth guidance for the U.S. market. Regarding potential tariffs, management views it as a hypothetical question, stating they would assess and adapt their strategy, including passing on costs or seeking backward integration, once specific details emerge.

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