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Domestic branded formulation drives earnings Remediation measures weigh on the international business

* Eris Lifescience (ERIS) delivered slightly better-than-expected revenue for the quarter. However, EBITDA/PAT were marginally below our estimates (4%/6% miss).

* The domestic branded formulation (DBF) segment has witnessed an improving YoY growth trend, with the insulin, Onco-Nephro, and VMN categories significantly outperforming the industry.

* The oral anti-diabetes (OAD) and cardiac therapy witnessed muted YoY growth compared to the industry.

* The international business performance was impacted by the implementation of corrective actions to address EU regulatory issues.

* We reduce our FY27/FY28 estimates by 6%/2%, factoring in:

a) a gradual revival in OAD and cardiac therapy growth

b) an additional opex in the Swiss parenterals business. We value ERIS at 25x 12M forward earnings to arrive at a TP of INR1,450.

* We expect 13%/15%/28% revenue/EBITDA/PAT CAGR over FY26-28, reaching INR40b/INR15b/INR8b. The current valuation adequately factors in the earnings upside. Reiterate Neutral.

Highlights from the management commentary

* Monthly sales for semaglutide have remained stable (~INR40m/month), with upside expected from the launch of the obesity SKU in 2QFY27.

* Semaglutide offtake has been slower at the industry level, with prescriptions largely driven by diabetes treatment rather than a weight loss perspective.

* Management highlighted patient resistance to Semaglutide adoption at the clinic level across indications. However, treatment outcomes in diabetes have been successful.

* International revenue is expected to remain broadly flat to grow at low single digits in FY27. International EBITDA margin is expected to contract by ~200bp in FY27 due to remediation-related costs.

* GM contraction was largely driven by the product mix, while solvent price fluctuations had a limited impact on gross margin.

* ERIS completed three engineering batches at its Bhopal biologics facility: Insulin Degludec/Degludec combination/Recombinant Semaglutide. Regulatory filings for these products are expected in 2QFY27.

Valuation and view

* We reduce our estimates for FY27/FY28 by 5.7%/2%. We value ERIS at 25x 12M forward earnings to arrive at our TP of INR1,450.

* We reduce our FY27/FY28 estimates by 6%/2%, factoring in: a) a gradual revival in OAD and cardiac therapy growth, and b) additional opex in the Swiss parenterals business. We value ERIS at 25x 12M forward earnings to arrive at a TP of INR1,450.

* We expect 13%/15%/28% revenue/EBITDA/PAT CAGR over FY26-28, reaching INR40b/INR15b/INR8b. The current valuation adequately factors in the earnings upside. Reiterate Neutral.

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