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Multiple levers at play; valuations attractive

* After delivering 27% earnings CAGR over FY17-22, GLAND is well-placed to sustain its earnings growth momentum over the next three-to-five years

* It has been enhancing its offerings by adding complex products to its portfolio, scaling the product at the global level, expanding capacity to aid manufacturing, as well as increased backward integration.

* While constraints on availability of certain materials may hinder performance over the near term, GLAND is in good stead for consistent performance over the next three-to-five years.

* The 40% correction over the past 10-12 months, despite healthy earnings growth, provides sufficient cushion on the valuation front. The stock is trading at 30x FY23E EPS of INR89 and 23x FY24E EPS of INR113.

* Given its superior business model, consistent compliance,strong return ratios, and surplus cash for inorganic opportunities, we value the stock at 33x 12-month forward earnings to arrive at our TP of INR3,700. We reiterate our Buy rating.

Efforts toward global leverage of the portfolio

* In addition to successful commercialization of products in the US market, GLAND is expanding its portfolio offerings in non-US markets as well. In FY22, it delivered a sales growth of 47% YoY in EU/Australia/Canada and 54% in RoW markets.

* GLAND extended its Enoxaparin Sodium, Heparin Sodium, Rocuronium Bromide, and Dexmedetomidine business, driving growth in RoW markets.

* Even in India, Enoxaparin Sodium contributed meaningfully to growth, in addition to: a) the successful launch of Caspofungin Acetate, and b) higher offtake of Ertapenem.

* It commands 10% market share globally in case of Enoxaparin Sodium and has enough scope to gain market share on the back of a cost efficient manufacturing process and ease of raw material availability.

Strong pace of product launches

* GLAND has filed 38 ANDAs and its partners have filed 12 ANDAs over the past two years. Over the past five years, it has clocked more than 40 global launches on an annualized basis, contributing to the growth of the business and market share gains in existing products.

* Revenue contribution from launches was 5% of sales in FY22. With meaningful launches from 2HFY23, we expect the share of revenue to increase going forward.

Building a base for China in the Generics market

* The Chinese injectable generics market is pegged ~USD43b and clocked 5% CAGR over CY17-21. Favorable government policies and support from parent Fosun will entail better business prospects for it in China.

* While GLAND continues to build its product pipeline (seven products filed till date), the regulatory inspection of its manufacturing site is awaited before obtaining product approval.

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