It’s a good time to be in the Indian pharma sector. New government policies are pushing it to move past producing cheap drugs and focus on massive global manufacturing.

The FY 26 budget backed this shift, with an INR 59.3bn allocation, up 12.6% y/y. This is alongside an INR 600bn Active Pharmaceutical Ingredient push and ongoing Production Linked incentives through the decade. It marks a clear shift toward domestic manufacturing and export-led growth.

The longer-term outlook shows momentum. Market research and intelligence firm Mordor Intelligence expects the market to grow from USD 60.3bn in 2026 to USD 79.7bn by 2031, a 5.7% CAGR. Companies now need to look beyond the domestic market for faster growth, especially in exports and complex generics.

Alkem Laboratories is perfectly placed, leveraging its top spot in anti-infectives and a growing US generics business to ride the wave.

In Q4 26, it grew 11.1% y/y, outperforming the Indian Pharmaceutical Market’s (IPM) 10.1% y/y growth by 100bp, showing that it is keeping pace with the market. The next phase depends on whether it can push growth when it gets tougher, instead of coasting on overall market demand.

Thin profits

Alkem closed FY 26 with revenue of INR 147.1bn, up 13.5% y/y from INR 129.6bn. Strong performance across Indian and international markets fueled the topline expansion. The domestic business continued as the company's bread and butter, bringing in 67.8% of total sales, growing 9.7% y/y to INR 98.5bn from INR 89.8bn last year.

However, net profit came in at INR 23bn, up just 6.3% y/y, from INR 21.7bn. Profit growth lagged in comparison to revenue because of INR 1.7bn+ in exceptional costs: labor code liabilities and real estate impairment dragged reported earnings.

Cash flow is where things get tighter. Operating cash flow came in at INR 19.6bn vs INR 19.1bn last year, which is barely 2.6% growth, despite ample topline expansion. Meanwhile, FCF grew to INR 13.5bn vs INR 12.4bn, but most of the improvement came from lower capex, not stronger cash generation, which is a less convincing driver.

Flatlining price

The stock has largely marked time: at INR 5,267, it’s up just 3.4% over the last year. It has also struggled to regain its 52-week high of INR 5,933.5, suggesting that the market isn’t fully buying the growth story yet.

Valuation tells a slightly different story. The stock trades at 27.1x based on potential FY 27 earnings, below its 3-year average of 29.1x. That’s a slight derating, and it lines up with what earnings are already showing: steady revenue, but weak conversion into profit.

Street sentiment, however, is convincing: 12 out of 16 analysts have a buy rating, with their average target price of INR 5,955 implying 12.1% upside potential. This suggests that expectations are gradually improving, while not resetting. Put simply: the stock is not expensive like before, but it hasn’t done enough to deserve a re-rating either.

The bump ahead

Alkem Laboratories is doing enough to stay in the game, but not enough to change the narrative. Growth is being pushed by exports, and profit isn’t keeping up.

Now it’s adding a new business into the mix, which sounds exciting but raises the risk if things don’t go right. The story from here is simple: it needs cleaner execution, or the market will keep its distance.