Published on 16/06/2017 5:43:22 PM | Source: SPA Securities Ltd

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Investment Rationale

Focus on branded prescription products catering to lifestyle disorders

Company's focus has been on developing, manufacturing and marketing products, which are linked to lifestyle related disorders (typically chronic), targeting specialists and super specialist segments. It develops, manufactures and commercializes branded prescription based pharmaceuticals products in select chronic and acute therapeutic areas (cardiovascular; anti-diabetics; vitamins; gastroenterology; anti-infectives; and gynaecology). In FY17, the company generated 65.6% of its revenues from the chronic segment and rest (~34.4%) from acute segment.


Outperformer in certain therapeutic areas

Company's revenues grew at ~17% CAGR, between FY13-17 outperforming the IPM growth of 11.8% in the same period. In the chronic segment, Eris was the fastest growing company, among the top 25 companies in terms of revenues, with revenue CAGR of 28.9%, between FY13-17. In the chronic category, products in the cardiovascular and anti-diabetics therapeutic areas accounted for 61.6% of its revenues in FY17. In the acute category, products in the vitamins and gastroenterology therapeutic areas accounted for 23% of the revenues in FY17. Company's mother brand groups contribute ~72.5% to the revenues, while top 25 mother brand groups contributed ~92.2%.


Focus on metro cities and class 1 towns in India

The company focuses on metro cities and class 1 towns/cities with higher incidence of lifestyle disorders and concentration of specialists and super specialists. As ~87% of diabetologists/ endocrinologists, 89% of cardiologists and 89% of gastroenterologists were located in metro cities and class 1 towns, company's product portfolio which relies on prescriptions by specialists and super specialists reported ~76.8% of its revenues from these areas for FY17.


Strong sales, marketing and distribution capabilities

The company created seven sales divisions, aligned with its key therapeutic areas. The sales divisions develop brand specific marketing strategies and engaging with doctors across India on a regular basis. Company also has a dedicated marketing team that utilizes a variety of marketing techniques and programs to promote its products enabling them to standardize its processes, reduce cost, enhance productivity, improve workflow and communications and improve risk control mechanisms.


Outlook and valuation

Eris Lifesciences focuses on branded formulations with major focus on specialty and super specialty therapeutic areas. The strong MR coverage (with 1507 MRs as of FY17) and increasing demand of products and services in specialty segments in tier 1 cities and Metros have resulted in Revenue/PAT CAGR of ~17%/43% respectively between FY13-17. Eris is a debt free company with an asset turnover ratio of 1.94 and has strong return ratios with ROACE/ROANW of 43.3%/ 57.7%. Company had consistent positive free cash flows over the past five years. At the issue price, the company is valued at a FY17P/ E of 34.3. With present capacity utilization at ~30% and specialty segments growing at a consistent rate, company expects to maintain sustainable growth rate of 18-20% in coming years. We recommend to SUBSCRIBE to the issue from a long term perspective.


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