EUR 120.00 For Business Accounts Only

MOSL: ERIS LIFESCIENCES: Steady outperformance across major therapies

ERIS LIFESCIENCES: Steady outperformance across major therapies

(ERIS IN, Mkt Cap USD1.2b, CMP INR695, TP INR850, 22% Upside, Buy)

• ERIS delivered an operationally better-than-expected 1QFY23 performance, led by outperforming the industry in Cardio-metabolic, CNS, Dermatology, and Women’s Health therapies. In addition to gaining market share in existing brands, it is on track for introductions across major therapies over the next 12-15 months.
• We reduce our FY23/FY24 EPS estimate by 8%/2%, factoring in: a) increased marketing spends on launches, and b) higher employee cost towards the addition of MRs in its Insulin portfolio. We value ERIS at 22x 12M forward earnings to arrive at our TP of INR850. We remain positive on ERIS’ strategy of scaling up newer therapies and introducing superior products in the base therapies. We maintain our Buy rating.

Spends on the marketing front lowers margin

• Revenue grew 14% YoY to INR4b (est. INR3.7b) in 1QFY23.
• Gross margin contracted by 160bp YoY to 78.7% due to a change in the product mix
• EBITDA margin contracted at a higher rate of 380bp YoY to 32.4% (est. 30.5%) on account of higher employee costs (up 100bp) and greater other expenses (up 120bp as a percentage of sales).
• Consequently, EBITDA was largely stable YoY at INR1.3b (est. INR1.1b).
• PAT declined by 13% YoY to INR931m (est. INR878m) due to lower other income and a higher interest outgo.

Key highlights from the management commentary

• The management has guided at a 30%/16-17% YoY growth in revenue/ EBITDA for FY23.
• From an EBITDA margin of 32.4% in 1QFY23, it expects the same to inch back up to 36% by FY25.