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Our Take:

RPG Life Sciences is a part of the R P Goenka (RPG) Enterprises. It operates in domestic and international markets in the branded and generic formulations, global generic and API segment. The company derives 62% of revenue from domestic formulations, 21% from international formulations and 17% from APIs. Key therapeutic areas in the domestic market are nephrology, rheumatology, oncology, orthopaedics, gastrointestinal, cardiology, anti-diabetic, and neuropsychiatry (CNS). It is a leader in the nephrology (immunosuppressant) space with brands such as Azoran (Azathioprine), Mofetyl (Mycophenolate Mofetil), Arpimune ME (Cyclosporine) and Imunotac (Tacrolimus).

In the domestic market, the company is increasingly focusing on the specialty and chronic segments. RPG’s MABs (monoclonal antibodies) portfolio witnessed strong growth in FY21. Company has forayed into Rheumatology through new launches. In Specialty portfolio, the company launched T-JAKi (JAK Inhibitor), Zestmab, HerMab, Adlumab, Ivzumab.

RPG launched NuGliptin and GliptiNext in anti-diabetic segment in FY21. Company also launched two new line extensions. Company has 5 pillars of growth on the domestic business front, it comprises of initiatives i.e. 1) Product portfolio rejuvenation by building chronic and specialty portfolio with new launches, 2) Building strategic brand assets through diligent life cycle management strategies 3) Deepen customer coverage in targeted therapies by expanding field force 4) Strengthening prescription business by focusing on customer, sales force and patient related initiatives; and 5) Improving profitability by opex control and efficient manufacturing operations.

On international business front, the strategy is to step-wise build up business profitably with a focus on key products with competitive edge and expanding footprints in Emerging markets like Myanmar, Sri Lanka, Vietnam, Egypt and UK etc. Going forward, the company would focus on sustainable revenue growth, while keeping a tight control on operating expenses.

Valuation & Recommendation:

We estimate 12.5% revenue CAGR led by healthy 12% growth from domestic market and 19% CAGR in international business over FY21- 23E. We forecast 180bps margin expansion to 19.8% on better gross margin and operating leverage. We expect net profit to register 22% CAGR over the same period. Return ratios have improved significantly over the past 2-3 years due to strong improvement in operational performance.

Company has strong Balance Sheet with cash & equivalents of Rs 41cr as on Mar-2021. At CMP, the stock trades at 14x FY23E EPS. We recommend buy on RPG Life Sciences in the Rs 498-503 band and add more on declines at Rs 449 (12.5x FY23E EPS) for base case target of Rs 548 (15.3x FY23E EPS) and bull case target of Rs 592.5 (16.5x FY23E EPS) over the next two quarters.

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