Buy Gland Pharma Ltd For Target Rs. 3,050 - Yes Securities
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Result Highlights
* Revenues jumped ~40% YoY on the back of strong growth in core markets (US & Europe +29% YoY), India (+15% YoY) and ROW (+196% YoY).
* In domestic market, Gland ramped up Remdesivir supply and maintained supplies of Enoxaparin
* Gross margin declined by 388bps YoY to 55.9% while EBITDA margin contraction restrained at 85bps YoY to 36.9%. Higher R&D too dampened margin
* R&D expenses at Rs304mn (vs. Rs173mn in Q4 FY20).
* FY21 capex at Rs2.2bn as company expanding its sterile injectable facility in Hyderabad. Additionally, it will be investing in the drug substance and biologics facility initially for vaccines and later on for biosimilars
Our view:
Gland Pharma ended FY21 on strong note with robust growth in US, Europe and ROW markets (on low base) coupled with solid margin delivery. We expect healthy growth to persist across most of the core markets along with India and ROW. Moreover, vaccine triggers to materialize as supplies start from Q4 CY21. Assuming Gland makes 30% of the final selling price and 20% margin (vs company average of 36%), Sputnik V deal can boost earnings by 8‐10% on conservative basis in FY23 (not factored in our estimate).
With ongoing capex in FY22 on API and sterile injectable facility, growth rates can sustain beyond FY23, backed by complex filings (notably peptides). Outer year triggers like biosimilar supplies to promoter Fosun, CMO capabilities in biosimilars would help move up the value chain along with complex generics. Reset FY23 EPS estimates marginally based on FY21 actuals and retain BUY for TP Rs3,050. Notwithstanding near term upside, our thesis of solid earnings compounding, outlined in our initiating coverage report in Mar’21, remains intact and expect stock to give outsized (~70‐75%) returns over a 3 year period.
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