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Slowly getting back on track

Work-in-progress to enhance commercial benefits from Cenexi

* Gland Pharma (GLAND) delivered an in-line operational performance in 2QFY24. Core markets and India showed superior performances, with a normalization in certain key products. GLAND continued its effort to improve the operational performance of Cenexi as well.

* We maintain our FY24/FY25 estimates. We value GLAND at 26x 12M forward earnings to arrive at a TP of INR1,920.

* After posting a 31% earnings decline YoY in FY23 due to several headwinds, GLAND’s base business is back on track with a superior performance. It continues to enhance its complex portfolio, with one FTF product already filed and at least two to be submitted to regulatory authorities soon. The company has also expanded its facility for the plasma protein portfolio. Accordingly, we estimate a CAGR of 30%/23%/14% in sales/EBITDA/PAT over FY23-25. Reiterate BUY.

Ex-Cenexi EBITDA margin surpasses YoY as well as QoQ basis

* 2QFY24 revenue grew 31.5% YoY to INR13.7b (in line). Sales in core markets grew 36.4% YoY to INR10.2b (74% of sales). RoW sales grew 18.6% YoY to INR2.7b (19% of sales). India sales grew 21% YoY to INR876m (6% of sales).

* Gross margin (GM) expanded to 62% (from 51% in 2QFY23) due to a change in the product mix and the addition of Cenexi business.

* However, EBITDA margin contracted by 590bp YoY to 23.6% (est. 24%), due to inferior operating leverage (employee costs/other expenses up 12.5%/0.4% YoY as % of sales). It was partly due to the annual summer shutdown of the Cenexi plant for four weeks. Excluding Cenexi, EBITDA margin was up 600bp YoY and 400bp QoQ at 34%.

* Consequently, EBITDA grew 5.3% YoY to INR3.2b (est. INR3.2b).

* Adj. PAT declined by 22.7% YoY to INR1.9b (our estimate: INR2.2b) due to higher depreciation, finance costs and tax expenses.

* For 1HFY24, revenue/EBITDA grew 35.8%/7% YoY to INR25.8b/INR6.2b. PAT declined by 19.2% YoY to INR3.9b.

Highlights from the management commentary

* Out of total 14 launches in the US market, four were new to market, while the remaining were relaunches.

* Excluding Cenexi, GLAND achieved EBITDA margin of 34% and expects to sustain it at 30-32%.

* Over the next 12-18 months, the company plans to invest EURO60m in Cenexi to improve its capacity and operational efficiency.

* The profit share stood at 11% of standalone revenue in 2Q.

* GLAND, along with its partners, filed 1 ANDA and received 5 approvals in 2Q.

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