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MOSL: GLAND PHARMA (Buy)-Complex products/newer markets to fortify growth pace

GLAND PHARMA: Complex products/newer markets to fortify growth pace

(GLAND IN, Mkt Cap USD8.4b, CMP INR3802, TP INR4460, 17% Upside, Buy)

 

Progressing well on scaling up manufacturing of the vaccine

• GLAND’s 1QFY22 performance was ahead of our expectation, led by robust revenue growth across all geographies. It is progressing well on scaling up manufacturing of the COVID-19 vaccine. It is concurrently developing products/undertaking capex related to complex product as well as enhancing its geographical diversification.
• We raise our FY22E/FY23E EPS estimate by 8% each to factor in: a) increased reach as well as penetration in the RoW/India markets, b) better outlook for the US market, c) higher offtake of Remdesivir/Enoxaparin, and d) continued manufacturing efficiency driving better operating leverage. We value GLAND at 35x its 12 months forward earnings to arrive at our TP of INR4,460.
• We remain positive on GLAND due to its: a) superior ramp-up in existing products, b) healthy build-up in the complex product pipeline, c) ongoing investment in the vaccine/Biological space, and d) enough scope for inorganic growth as well. We reiterate our Buy rating.

 Strong beat on earnings led by superior revenue growth

• Revenue grew 31% YoY to INR11.5b (est: INR9.9b) in 1QFY22. 
• India/RoW sales rose 77%/51% YoY to INR2.3b/INR2.2b (20%/19% of sales). Sales in core markets grew 16% YoY to INR7b (61% of sales).
• Gross margin contracted by ~1,030bp YoY to 53.5% as 1QFY21 had benefitted from niche launches. GM fell 240bp QoQ due to changes in the geographic mix.
• EBITDA margin decreased at a lower rate (890bp YoY) to 37.8% (est. 37.1%) due to better operating leverage (employee cost/other expenses fell 120bp YoY/30bp YoY as a percentage of sales). In fact, EBITDA margin expanded 90bp on a QoQ basis.