Buy Large Cap Pharma Stock For Over 40 Gains, Sees 24% Earnings CAGR, Stock Near 52 Week Low

Stock Outlook

The current market price (CMP) of Gland Pharma Ltd is Rs 2634.85/share, which opened at Rs 2670/share, while the last week's close was Rs 2,643.65. The stock hit the 52 week low level on 20th Jun2 2022. Currently, it is trading above Rs 139.7/share from its 52-week low levels of Rs 2495.15/share. Whereas, it is trading at nearly Rs 1715.15/share below its 52-week high of Rs 4,350/share levels.

The has moved down nearly 16.18% in the last one year, 18.23% in three months, and 8.04% in 1one month, however. In the last one week, it gained roughly 2.98%. The stock was open at a good price tag compared to the previous week's close, however, it slid in the initial hour.

According to the Stock's CMP and the estimated Target price of Rs 3700, the stock has the potential to Jump over 40% in 12 Months.

 

Efforts toward global leverage of the portfolio

In addition to the successful commercialization of products in the US market, GLAND is expanding its portfolio offerings in non-US markets as well. In FY22, it delivered a sales growth of 47% YoY in EU/Australia/Canada and 54% in RoW markets. Gland Pharma extended its Enoxaparin Sodium, Heparin Sodium, Rocuronium Bromide, and Dexmedetomidine business, driving growth in RoW markets. Even in India, Enoxaparin Sodium contributed meaningfully to growth, in addition to: a) the successful launch of Caspofungin Acetate, and b) higher offtake of Ertapenem. It commands 10% market share globally in case of Enoxaparin Sodium and has enough scope to gain market share on the back of a cost-efficient manufacturing process and ease of raw material availability.

Strong pace of product launches

Gland Pharma has filed 38 ANDAs and its partners have filed 12 ANDAs over the past two years. Over the past five years, it has clocked more than 40 global launches on an annualized basis, contributing to the growth of the business and market share gains in existing products. Revenue contribution from launches was 5% of sales in FY22. "With meaningful launches from 2HFY23, we expect the share of revenue to increase going forward," the brokerage has said.

Building a base for China in the Generics market

The Chinese injectable generics market is pegged ~USD43b and clocked 5% CAGR over CY17-21. Favorable government policies and support from parent Fosun will entail better business prospects for it in China. While GLAND continues to build its product pipeline (seven products filed till date), the regulatory inspection of its manufacturing site is awaited before obtaining product approval.

Capacity ramp-up underway to cater to newer opportunities

Gland Pharma expanded its formulation capacity by 25% in FY22 to 1b units of finished dosages across its four manufacturing facilities. This is to support its complex injectable pipeline for suspensions, hormones, and emulsion-based products. Filing of complex products is underway, with four already filed (three hormonal products and one complex peptide) and three (two hormonal products/one complex peptide) expected to be filed in 2QFY23. The management is spending INR2b for microsphere bulk manufacturing and microphone powder filling cum liquid filling line. Considering the historical asset turn of 2.8x, capital expenditure of INR1.7b in FY22, and an additional capex of INR2b to generate a revenue of INR10b at optimum capacity utilization. It has invested INR3.5b in building capacities and capabilities for opportunities in Biologics CDMO.

Growth Drivers

1. Backward integration to drive better profitability

Over the past two years, Gland Pharma has been able to increase captive sourcing to 33% of its total API requirement from 25%. This has helped expand margin and reduce the dependency on external sources.

2. Favorable industry dynamics; robust compliance to drive further market share gains

Unlike oral solid generics, where there has been a steep price erosion and considerably dragging down profitability, injectable generics witnessed stable price inflation trends over the past two-to-three years. This is due to increasing regulatory compliance and/or operational issues reducing competition. Gland Pharma is favorably placed, with consistent compliance since its inception, and faces minimal manufacturing challenges. The company has benefited from better business opportunities from drugs under shortage.

Brokerage Suggests buy for Target Price of Rs 3,700, Expect earnings CAGR of 24%

Motilal Oswal Stated, "We expect 24% earnings CAGR over FY22-24, led by 15% sales CAGR in its core markets and 30% each in India and the RoW. We estimate Vaccine/Biologics sales of INR1.5b in FY24. We value Gland Pharma at 33x 12-month forward P/E to arrive at our Target Price of Rs 3,700. We remain positive on the basis of: a) its niche product pipeline in injectables, b) volume gains in existing products, c) portfolio expansion in China, d) capacity ramp-up driving higher volumes, and e) backward integration driving profitability. The benefits of complex product launches in the US and Biologics CDMO, which are expected to be realized beyond FY23, will provide further upside to our estimates. We maintain our Buy rating."