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MOSL : ERIS LIFESCIENCES: Enhanced efforts toward product launch-related activities

ERIS LIFESCIENCES: Enhanced efforts toward product launch-related activities

(ERIS IN, Mkt Cap USD1.2b, CMP INR708, TP INR860, 21% Upside, Buy)

• Eris Lifesciences (ERIS) delivered better than expected 2QFY23 performance, led by superior traction in new launches and improved operating leverage. ERIS is notonly sustaining the momentum in its recently launched products, but it is also preparing itself for an aggressive pace of new introductions.
• We reiterate our earnings estimate for FY23/FY24 and continue to value ERIS at 22x 12M forward earnings to arrive at a price target of INR860.
• We remain positive on ERIS on the back of a) exciting product pipeline over the next three years, led by patent expiration, b) enhancing anti-diabetes portfolio, c) diversifying into therapies such as dermatology, cosmetology, Central nervous system (CNS) and women health. We reiterate our Buy rating on the stock.

Oaknet addition and marketing expenses lower EBITDA growth vs revenue growth

• ERIS 2QFY23 revenues grew 28% YoY at INR4.6b (our est INR4.4b). Oaknet business and enhanced traction from Insulin led overall YoY growth in revenue for the quarter. Standalone revenue grew at a moderate rate of 10% YoY, dragging revenue growth to some extent for the quarter.
• Gross margin contracted 450bp YoY to 77% (our est 79.7%) due to product mix change and higher RM cost.
• EBITDA margin contracted further by 600bp YoY to 32.9% (our est.31.2%). This is largely due to higher employee expense (+320bp YoY as % of sales), partially offset by lower other expenses (-170bp YoY).
• Accordingly, EBITDA increased at a lower rate of 8% YoY to INR1.5b (est. INR1.4b), compared to YoY revenue growth for the quarter.
• PAT was stable YoY to INR1.2b (our est. INR1b), due to higher depreciation/amortization and interest cost, partly offset by lower tax outgo.
• For 1HFY23, Revenue/EBITDA grew 21%/5% YoY to INR8.6b/INR2.8b, respectively. However, PAT declined 6% YoY to INR2.1b.

Key highlights from the management Commentary

• ERIS guided for a consolidated revenue growth of 30% YoY and EBIDTA growth of 16-17% YoY (including Oaknet) for FY23.
• For the Oaknet business, ERIS guided for INR500m EBITDA in FY23 vs earlier guidance of INR500m in FY24. It achieved INR165m EBITDA in 2QFY23.
• ERIS expects emerging Therapies (21% of current revenue) to grow ahead of the market by a significant margin with a) new launches in Dermatology and Cosmetology, b) force Multiplying effect in Women’s Health therapy with two divisions having 470+ Reps across Eris & Oaknet, c) expansion of specialist coverage, and d) inorganic expansion
• The company successfully launched four  drugs (Zomelis D, Glura, Gluxit S & FCM Injection) in H1 FY23.
• ERIS intends to garner a revenue of INR180-200m from insulin in FY23.