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Expanding niche portfolio/reach

* Its core markets (US, Europe, Canada, and Australia) are expected to perform on the back of volume growth and new launches.

* India and RoW markets are gaining traction, with additional capacities and geographic expansion.

* China and Vaccine/Biologics are the new levers of growth in the existing business.

* We expect 35% earnings CAGR over FY21-23E, led by 18%/44%/48% sales CAGR in its core markets/India/RoW and a 40bp margin expansion. We value GLAND at a P/E multiple of 35x to arrive at our TP of INR4,630. We reiterate our BUY rating.

Niche products/capacity expansion to drive growth in core markets

* In 1QFY21, growth in core markets was driven by key products such as Micafungin, Enoxaparin, Heparin, Dexmedetomidine, and new launches, especially Penems like Ertapenem and Meropenem. Benefits from the single source supply contract with the distributor for Enoxaparin, by replacing the innovator, would start from 4QFY22 onwards. Other recently launched products are expected to be ramped up in the remaining part of FY22.

* GLAND is strengthening its product pipeline of peptides, long acting injectables, suspensions, and Hormones. While it is working on 14 products currently, it intends to enhance the pipeline by 20-25 products over the next 2- 3 years.

* Given the launch momentum and better traction in existing products, we expect 18% sales CAGR in core markets to INR29b over FY21-23E.

Enhanced geographic reach/new products to aid RoW market prospects

* GLAND has had the benefit of faster entry into many RoW countries, due to the ongoing pandemic, via its COVID-19 portfolio of products. While the entry into newer countries was on the back of its COVID-19 product portfolio, GLAND has launched its non-COVID portfolio as well in these markets.

* In China, it has filed six products, with a total market size of USD550m. Approval for the first product is expected at the end of FY22, with revenue kicking in from 1QFY23E. We expect sales from new markets and product launches in existing markets to drive 48% sales CAGR to INR12b over FY21-23E in the RoW segment.

Vaccine on track; Biopharma CDMO expansion on the horizon

* GLAND is on track with respect to scale-up of Sputnik V vaccine. With process improvements and changes, it is working to increase yields on both vaccine doses.

* It is in discussions with Fosun’s other subsidiaries for CDMO contracts in Biologics/Biosimilars for global markets. GLAND’s move to expand into the Biologics CDMO space, through the vaccine contract, by leveraging parent Fosun’s relations and its strong compliance track record would add a new lever of growth to its existing business and provide further upside from our current estimates.

Valuation and view

* We expect 35% earnings CAGR over FY21-23E, led by 18%/44%/48% sales CAGR in its core markets/India/RoW and a 40bp margin expansion. We value GLAND at a P/E multiple of 35x to arrive at our TP of INR4,630.

* We remain positive on GLAND on the back of: a) continued growth momentum in its core markets, b) geographical expansion and new product launches in the RoW segment, c) operating cost efficiency, d) consistent compliance, and e) an adequate war chest to tap inorganic opportunities. We reiterate our BUY rating.

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