Gland Pharma Ltd (GPL) was established in Hyderabad, India in 1978 and is present in sterile injectables, oncology and ophthalmic, and focus on complex injectables, NCE-1s, First-to-File products and 505(b)(2) filings. It has a consistent compliance track record with a range of regulatory regimes across the markets and has never got a warning letter from USFDA. It has seven manufacturing facilities in India, comprising four finished formulations facilities and three API facilities. As of June 30, 2020, GPL along with its partners has 267 ANDA filings in the United States, of which 215 were approved and 52 were pending approval.
Objects of the Issue
The issue of Rs 6480 cr comprised of Rs 1250 cr fresh issue and Rs 5230 cr Offer for Sale. The company intends to incur capex from the fresh issue.
* Extensive portfolio of complex products
* Vertically integrated injectables manufacturing capabilities with a consistent regulatory compliance track record
* Diversified B2B-led model across markets
* Healthy Financials – (a) Robust Return Ratios (b) Strong profitability and healthy revenue growth (c) Healthy Balance Sheet
Valuation and Recommendation
Between FY18-20, Gland Pharma’s revenues have grown at CAGR of 28% while Q1FY21’s revenue grew by 31%. The company is engaged in complex products hence it has healthy profitability. Due to no debt and high cash, the company has strong PAT margins at 29.4% in FY20 which has improved from 19.8% in FY18.
We believe the company is able to maintain CAGR of 25% for medium term with strong profitability. Though, Q1FY21 margins looks on the higher side, we believe EBITDA margins in the range of 35-38% are sustainable.
The company intends to do capex with the IPO and cash on books, which can temporarily affect the return rations in near term however the long-term trajectory remains positive The issue price commands P/E of 31.7x FY20 and 19.5x Q1FY21 annualized earnings at the upper price of band of Rs 1490-1500, which is at upper end of Industry. However, going forward the higher revenue growth, improving profitability would make it a better choice among peers. We recommend “Subscribe” on the issue for long term gains
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