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Outlook hinges on strength of US rebound; ADD stays

Result Synopsis

Gland continues to report sequential improvement in US business with rather sharp 20% jump QoQ though YoY improvement was restricted to 5%. Management did not spell out any revenue guidance but expects standalone ex-Cenexi margin to be in the range of 30-32% (vs 34% in Q2). As indicated in Q1, Cenexi saw 1-month shutdown translating into EBIDTA loss Rs268mn though it should clock 10-11% margin on an annual basis. Standalone US business is showing encouraging signs of return to normalcy with base business volume growth and benign pricing environment. Key issue remains pertaining to how much US recovery is sustainable over next 2-3 quarters. We raise FY25 estimates by ~6% as FY24 US growth ex-Cenexi is upped to 8% vs 5% earlier; With no near term margin levers in Cenexi, underlying improvement in US would drive better margin in FY25. Rest of the markets were steady though Heparin pricing issue still remains an overhang along with Enoxaparin in US. We raise target multiple to 28x (from 25x) earlier to factor in better operating environment and some premium to generics whom we value at 20-25x on FY25 basis. Any reversal/volatility in US business is a key risk which is also the reason for not upgrading the stock. Retain ADD with revised TP Rs1,780 (earlier Rs1,500) based on 28x FY25 EPS.

Result Highlights

US continues with strong performance for second successive quarter as double digit contribution from vol growth and new launches each led to 20% QoQ rise in US sales

Cenexi underwent 1 month shutdown as alluded in Q1 call resulting in ~Rs270mn EBIDTA loss as company lost 1 month of sales that come with ~10-11% margin

Management guides to 30-32% range ex-Cenexi which implies some moderation from Q2 figure of~34%; profit share of ~10% for Q2

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