IGI Logo

The Pharma Brand Master

Mix of Chronic portfolio, rising coverage, and better operating leverage to drive earnings growth

* We initiate coverage on Eris Lifesciences (ERIS) with a BUY rating and a target price of INR870. In just 14 years (founded in CY07), ERIS has built a pure-play Branded Formulation business, with a revenue of INR13b (12M ending Sep’21). Notably, its PAT has nearly doubled to INR3.5b during FY16–21.

* ERIS ranks among the Top 25 Indian companies in revenue terms. ERIS has presence across the value chain in developing, manufacturing, and marketing of branded pharma products in select Chronic therapies (the fastest growing company in Chronic category), such as Anti-Diabetes (AD; 37% of sales), Cardiac Care (31% of sales), and Vitamins/Minerals/Nutrients (VMNs; 23% of sales).

* We expect a 17% earnings CAGR for ERIS over FY21–24 versus marginal earnings growth during FY18–21, driven by: a) higher scope of penetration of technically superior drugs in AD therapy (adding Insulin-analogs to the AD portfolio), b) its efforts to improve the coverage of super-specialists/high-end consulting physicians across therapies, c) better operating leverage on improved MR productivity, and d) higher in-house manufacturing.

* We ascribe a three-year industry average P/E multiple of 22x on 12M forward earnings to arrive at our TP, which implies 27% upside from current levels.

AD – Building an ecosystem around diabetes management

* ERIS is a dominant player in AD therapy, with a market share of 5.6% (+160bp over FY16-21) in covered market. ERIS' sales recorded a 21% CAGR over FY17-21 to attain a revenue of INR4.5b (FY21; +19% YoY in 1HFY22).

* Within the industry level framework of increasing patient pool and evolving medication to lower hypoglycemia risk/weight management, ERIS has built an extensive range of products in Oral anti-diabetics (OAD). Besides conventional OADs, it has also been launching the latest molecules (DPP4/SGLT2 inhibitors) and gaining market shares in these products.

* Underpinned by its strong marketing franchise, ERIS improved its sales: a) of Zomelis by 6x (INR60m per month) in two years since its acquisition, and b) of Gluxit by 4x (INR30m per month) in one year since its launch.

* We believe that there is a strong visibility for new product offerings as at least one product is expected to go off-patent over the next ten years in OAD therapy. Additionally, foray into Insulin and its analogues through supply tie-up with MJ Biopharm, would bolster ERIS’ portfolio in AD.

* Further, ERIS continues to provide medical equipment to track critical parameters for better diabetes management. Thus, its product and service offerings play a vital role in improving the prescription pace of its products.

* We project a 19% sales CAGR for ERIS in this category over FY21–24, given the under-penetration of newer molecules (DPP4/SGLT2 inhibitors, Insulin analogs, etc.), its established brand franchise, and better connect with patients through improved services.

Cardiovascular – Focus on aggressive expansion of super-specialty doctor coverage

* ERIS' sales recorded 14% CAGR over FY17-21 in the Cardiac Care category to reach INR3.7b in FY21 (+15% YoY in 1HFY22). Within this segment, ERIS has focused on medicines related to hypertension and lipid lowering subgroups that formed ~83% of current medication at industry level.

* The demand outlook for cardiovascular diseases remains strong (~37m cases in CY20 expected to reach 88m by CY50). While ERIS has built key brands such as Eritel (Telmisartan combination), Olmin (Olmesartan combination), Atorsave (Atorvastatin), LN Bloc (Cilnidipine), and Crevast (Rosuvastatin combination) in this segment, it intends to increase the coverage among super-specialty and high-end physical consultants by 50% over the next two years. This would not only comprise propagating own products but also conducting India-centric studies to enable scientific evidence and thus better diagnosis

* We expect a 13% CAGR for ERIS in this category over FY21-24 to reach INR5.3b of revenue led by: increased MR-doctor connect, technically superior products in hypertension/lipid lowering subgroups and new launches (such as Rivalto).

VMNs – rising awareness/co-prescription to improve outlook

* ERIS recorded a 27% CAGR over FY17-21 to reach INR2.8b of revenue in FY21 (+35% YoY in 1HFY22). The growth was driven by active engagements with cardiologists, diabetologists, and endocrinologists.

* The company has built the VMN portfolio as a natural extension of the Cardiac Care and AD portfolios.

* We project a 16% sales CAGR for ERIS in this category over FY21-24 to reach INR4.5b led by anticipated market share gains in existing products (through enhanced co-prescriptions), supported by new launches (such as ZAC D) and rising demand for immunity boosters.

MR additions to underpin new offerings/increased reach

* To complement its product offerings, ERIS has expanded its field force by 600 MRs to 2,182 (FY21) over past five years. The MR productivity, at INR4.8L per MR per month, is in line with industry average and has scope for improvement.

* The company aims to expand its coverage of super-specialists and consulting physicians; thus, we expect a calibrated increase in MRs (likely addition of 200 MRs in 4QFY22/1QFY23) over the next 2-3 years.

Valuations and view: Initiate coverage with a BUY rating

* ERIS has delivered a 13% revenue CAGR, with a steady 35% EBITDA margin over FY17-21. Notably, the EBITDA margin improved to 39% in 2QFY22.

* During FY18-20, ERIS had put considerable efforts in turning around the portfolio acquired from Strides. However, despite this exercise, it was able to maintain its profitability at pre-acquisition levels only.

* Overall, we project a 17% earnings CAGR, led by a 19%/13%/16.5% sales CAGR in AD/Cardiac Care/VMN segments, respectively, over FY21-24 along with a 130bp margin expansion during the period.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

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