IGI Logo

Our view

Foray into animal healthcare business is a negative development even though absolute amount deployed at Rs4.2bn may not be large enough to constrain the balance sheet. Company aims to significantly ramp up from current annual proforma US$13mn revenues on back of monetization of ~60 products in the pipeline. Albeit, such a foray is, we note, in contrast to trends seen at other companies – Zydus hiving off animal business and globally Zoetis demerged from Pfizer. Since animal health and human pharma do not have any overlap, we remain unconvinced about any complementary nature of animal health business.

This creates an overhang and distraction in an otherwise weak quarter with US revenues down 2% yoy. Injectables business is likely to be monetized given the restructuring underway in Eugia which we had hitherto envisaged as a key trigger. Allocation of capital towards animal health would overshadow the monetization of injectables which is a key reason for our downgrade to ADD with revised TP Rs980 (earlier Rs1,200).

While catalysts for injectables growth remain intact at Vizag plant for Europe & emerging markets, new US facility for high value/low volume products and ramp up at Unit IV, reckon the diversification into an unrelated area would keep PE multiple under check. We lower FY22/23 estimates by 7%/5% and introduce FY24 forecast. Roll over our revised 13x PE (earlier 17x) which is ~30% higher than bottom end of historical range (on optimism around injectables business), though stock performance would be back ended upon rebound in injectables sales.        

Result Highlights

* Foray in to animal health business; buys 51% in Cronus for Rs4.2bn  

* Diversification in contrast to demerger trends seen globally (Zydus, Bayer, Lily)

* Lackluster US injectable sales; ARV sales come off on high stocking base last year

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer