Buy This Small Cap Pharma Stock, Revenue Grew 28% YoY, Shares Can Surge 17%: Prabhudas Lilladher

Prabhudas Lilladher has placed a buy call on Eris Lifesciences Limited with a target price of Rs 850 per share. It is a small-cap pharmaceuticals company having a market capitalization of Rs 9,948.40 crore. Based on the brokerage firm's estimated target price, the stock is expected to rise 17% from its current level in the next 12 months. According to the brokerage company's Cardio-metabolic therapy segment continues to beats IPM growth. Furthermore, Guided for 32-33% OPM in FY23.

Stock Outlook & Returns On Investments

On NSE, the stock is currently trading at Rs 722.80 per share, 0.54% down from its previous close. The 52-week low of the stock is Rs 600.30 per share recorded in June 2022, and its 52 week high is Rs 835 recorded in November 2021, respectively.

The stock has given a 0.17% negative return over the past one week and a 4.41% positive return over the past one month. It has given a positive return of 7.42% over the past three months. The stock has given 6.95% negative returns in the past one year. Whereas, it has given positive returns of 67.7% and 27.75%% over the past three and five years, respectively.

In-line revenue aided by Oaknet consolidation

ERIS grew by 19% YoY vs IPM growth of 13% in 2Q as per AIOCD. Revenue grew by 28% YoY to Rs4.6bn in-line with our estimates aided by Oakanet consolidation. Industry growth of Cardio-Metabolic market remained at 9.6%, while company's core Cardio-Metabolic segment grew by 16.4% YoY. During the quarter, company's emerging specialty therapies i.e. Derma, CNS and Women's health have contributed 21% of revenue and grew by 25% each, while VMN segment grew at 14.5%. Oaknet contributed Rs681mn, while insulin contributed Rs31mn to total revenues.

In-line EBITDA

EBITDA came in at Rs 1.5bn (up 8% YoY and 17% QoQ), in line with our estimates. Operating margins stood at 32.9% (down 600bp YoY, up 50bp QoQ). The YoY decline in margins was on account of lower GMs and higher employee expenses. Gross margin was down by 160bp QoQ to 77%, while employee expenses grew by 51% YoY vs revenue growth of 28%. Tax came in lower at 1%. Resultant PAT came in at Rs1.2bn (up 2% YoY) vs our estimates of Rs 1.1bn.

Key concall takeaways

(1) Oaknet deal turned out well and continued growth momentum in Q2FY23. Management is confident about achieving EBITDA of Rs 500mn in FY23 which is one year ahead of expectation.

(2) ERIS expects market to grow by early to mid-teen growth rate with 5-6% from new products, 4-5% from price increase and 3-4% from volume growth.

(3) The brand Zomelis and Gluxit group sustained its growth rate and improved its monthly sales run rate by Rs 90mn / Rs50mn and expects to grow faster than the legacy products.

(4) Eris has planned for more than 15 new launches in FY23 including 5-6 significant launches and also lined up an interesting Derma-Cosme pipeline for launch starting Oct '22.

(5) ERIS expects Rs 180-200 mn revenue in FY23 from its human insulin portfolio which will scale-up quickly with the schedule launch of Xglar (Glargine in-licensed from Biocon) in Oct'22.

(6) Company guided for tax rate to be at 8-9% in FY23 with EBITDA margin between the range of 32- 33% given higher investments in Oaknet, initial launch expenses of Glargin, MR additions.

 

In line quarter; Oaknet acquisition tracking well , Buy for Rs 850 target price

According to the brokerage, Eris Lifesciences (ERIS) reported moderate operating profit (up 5% YoY), due to higher promotional expenses from new launches. However, we believe benefits of operating leverage will play out, as revenue scales up from these launches. Further acquisition of Oaknet gives Eris an entry in the derma segment, currently operating at sub optimal profitability. Eris's turnaround of Strides acquired portfolio provides comfort for similar execution. Further, the company continues to outperform cardio metabolic market (60% of its total revenues) which expects robust growth over next 3-4 years with wide patent expiration opportunities. "We maintain our 'BUY' rating at Target Price of Rs850, valuing 16x EV/EBITDA on Sept FY24E," the brokerage has said.

 

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.