IGI Logo

Our view: The gradual ramp up in ProAir and Levo translates in to a 10% cut in US sales in current fiscal as well as FY22/23. Albeit, we also reduce R&D expense estimate for FY21 post Q3 and also lower outer year spends. This largely leaves EPS estimates unchanged though we reckon larger part of cost savings are factored in FY21 and any more disappointment in ProAir or Levo would impact margin. Albuterol ramp up would boost margin to ~20% in FY23; albeit we see risks to market share once Perrigo is presumably back next fiscal. While niche launches like Tacrolimus, Mycophenolate would offset the base erosion, we believe large one‐off products carry risk of competitive attack which creates uncertainty in sales forecast beyond 6 months. A similar phase was seen in FY16‐17 when Glumetza franchise brought large one‐time sales which were competed away in subsequent quarters. Although Albuterol, being inhaler, has entry barriers, but we would be wary of banking on a top‐heavy portfolio. We retain our SELL on unchanged target PE on FY23 EPS of Rs43.  

Q3 call highlights  

* Market share ramping up in Albuterol; latest monthly data shows share at 9% of the generic market

* Have capacity for 20% market share in Albuterol; see scope for full ramp up in next quarter; targeting 14‐15mn units out of 70mn units market

* Continue to make progress on Spiriva filing and on track for June 2022 launch

* See further improvements to cost rationalization and product mix

* Meaningful FDA activity on inspection pick up late in H2 CY21; not happy with the extent of Somerset observations but would not generalize to other plants  

* R&D to stay at 9% of sales – generally file 30‐35 products of which 20‐25 oral

* 6 injectable filings every year of which 2 are complex

* Pegfilgrastim still continues to be a reasonable opportunity  

* Levo – Couple of points away from 20% share but it remains a difficult product to gain share given the narrow therapeutic index

* US sales ‐ One of the weakest flu season in US led to lower demand for Tamiflu, Cephalosporins while still building share in Metformin which would scale up in Q4

* Need US$20mn of annualized branded business for the current 40 MR strength in US; looking at other products  

* Forstair – building like a branded market starting out with UK and will take couple of years to cover Europe; 2‐3 players for Euro600mn market  

* One time litigation related income included in other operating income adjusted for which margin would have been slightly lower

* Effort is to keep EBIDTA margin at 20‐22%  

* Gross margin – Albuterol sales, lower freight costs aided pick up

* Effective tax rate at 30% in FY22

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