Brokerage firm Motilal Oswal has kept its 'Neutral' stance on Alkem Laboratories with a target price of ₹5,770. While the company reported strong profit figures for the first quarter of fiscal 2027, the brokerage highlighted that high operational costs from new business initiatives continue to impact growth. Investors may track how the company manages these expansion expenses alongside its core operations.
Brokerage firm Motilal Oswal has maintained its 'Neutral' rating on Alkem Laboratories, setting a target price of ₹5,770 per share. This decision follows the release of the pharmaceutical company's financial results for the first quarter of fiscal year 2027, which offered a mixed picture for shareholders.
In the June quarter, Alkem Laboratories met revenue expectations while delivering a notable surprise on the profit front. The company’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) and Profit After Tax (PAT) exceeded estimates by 16% and 19%, respectively. A major highlight was the achievement of the highest quarterly gross margin in the last ten years, signaling that the company is managing its production and raw material costs efficiently.
The positive earnings surprise was largely driven by a better product mix and improved operating leverage. Alkem has continued to maintain a strong footprint in chronic therapy segments, where it is consistently growing faster than the broader pharmaceutical industry.
Despite these improvements, the brokerage maintains a cautious view due to several ongoing challenges. A significant portion of the company’s profit growth was offset by high operational expenditure related to newer initiatives. Specifically, the Enzene Contract Development and Manufacturing Organization (CDMO) business and the medical technology (medtech) segment are currently in a long gestation phase, meaning they require heavy investment before they can turn profitable. This spending is expected to act as a drag on EBITDA growth in the short term.
Further complicating the outlook is the performance of the domestic trade generics segment, which has been weak. Beyond internal business hurdles, the company also faces external risks. Notably, the U.S. regulatory environment remains a point of concern, with the Daman facility still under scrutiny regarding its compliance status. Additionally, the company faces a projected consolidated tax rate of 30% to 32%, which could impact net profitability.
Looking ahead, Motilal Oswal has slightly raised its earnings estimates by 4% for FY27 and 3% for FY28. This adjustment accounts for expectations of solid growth in international markets and the continued strength of the company's chronic therapy portfolio. However, because the payoff from newer business investments may take time to materialize, the brokerage suggests investors should focus on how effectively the company can balance its capital spending with sustainable profit margins.