‘Factually incorrect’: Alkem Labs on tax fraud reports; share tanks 6.6%

Shares of pharmaceuticals company Alkem Laboratories Ltd plunged 8% today after reports said the income tax department found tax fraud of “large scale”  involving the company. Shares of Alkem opened a gap up at ₹5,421.65 on the BSE and plunged to an intra-day low of ₹4,652.95, down 8%. However, the stock recovered by the end of the trading session and settled at ₹5,060.30. 

Clarifying on the media reports, Mumbai-based Alkem categorically denied these allegations and said they are factually incorrect. "We would also like to specifically state that we are not aware of any information that could have had an impact on the trading of the company’s equity shares. The publication of these articles do not have any material impact on the Company," Alkem says via an exchange filing.

The company asserted its commitment to compliance and transparency, having fully cooperated with the I-T department officials during their survey proceedings in September 2023. The company had subsequently received certain queries from the IT department, which have been addressed, it adds.

"The Company remains committed to follow principles of the best corporate governance and ethical business practices," says Alkem.

Earlier, a media report by a TV channel alleged that Alkem claimed fake deductions worth ₹1,000 crore concerning its unit in Sikkim. The Alkem Lab shares have fallen 7.67% in the past week, but have surged 0.76% in the past month; 35.03% in the past six months; and 2.09% in the year 2024 so far. In the past year, the stock has surged 53.18%.

Alkem Lab's net profit for the October-December quarter of 2023-24 was ₹595 crore, which is a year-on-year growth of 30.8%. The company's revenue from operations was ₹3,323.9 crore, a year-on-year growth of 9.3%. The company's India sales stood at ₹2,232.8 crore, up 12.1% YoY, and EBITDA came out to be ₹707.6 crore, a margin of 21.3% YoY.

Bank of Baroda Capitals, in its latest technical report on Alkem stock, said the company's India business grew 12% YoY and ROW (rest of the world) markets 47%, compensating for a 10% fall in U.S. revenue. Though price erosion has reduced, the company's US business contracted due to a weaker flu season than last year, says BoB Caps.

The brokerage downgraded the stock to "Sell", saying its current valuations look expensive. "We retain FY24-FY26 estimates but raise our target FY26E EV/EBITDA multiple from 16x to 18x – in line with stock’s 5Y average – to reflect the rebound in India business. On rolling over to FY26E valuations, our TP rises to ₹4,800 (vs ₹3,850). The stock has rallied 25% over the past three months and current valuations look expensive at 22.9x/19.5x FY25E/ FY26E EV/EBITDA. We thus downgrade our rating from HOLD to SELL."