Gland Pharma’s shares have more than doubled since IPO, and there is still scope for growth

Gland Pharma Ltd, which is controlled by Chinese drugmaker Fosun Pharma, has the potential to bounce back after its recent fall and touch new highs in coming months.

The Hyderabad-based company went public in November last year through a Rs 6,480-crore initial public offering, the biggest ever by a pharmaceutical company in India. Its shares had jumped 23% on the stock market debut before continuing their upward journey.

The company’s stock price nearly tripled to Rs 4,350 apiece in August this year compared with the IPO price of Rs 1,500. But since then, the stock has lost almost a sixth of its value and closed at Rs 3,613.55 apiece on Friday.

Domestic brokerages, however, believe the stock is poised for another breakout thanks to strengthening of its business in the core market, robust growth prospects across geographies, and industry-leading return ratios.

The stock may see an upside of 22-39% from here on, broking firms say. It commands a price-to-earnings (P/E) valuation of roughly 40 times its estimated earnings for fiscal 2022-23 and 26 times its projected 2023-24 earnings.

Mumbai-based stock advisory firm Emkay Global Financial remains positive on Gland Pharma and has set a target price of Rs 5,000 per share on the back of strong growth and profit visibility.

Emkay’s pharmaceutical analyst, Kunal Dhamesha, estimates Gland Pharma’s revenue to grow at a compound rate of 25% between 2021-22 and 2024-25, while EBITDA and net profit are forecast to grow at 25% and 27%, respectively.

“Volume growth in existing products is a differentiator,” said Dhamesha, adding that the company’s focus on the injectables business helps it to attain cost leadership through economies of scale and operational efficiencies.

Emkay said the company has retained its soft-growth guidance in the mid-20s, led by mid-to-high-teens growth in the US market. Growth in the US will be driven by new products and existing products equally. However, the Rest of the World market is expected to grow faster than the US as the company enters new markets and expands its portfolio in existing markets.

Gland Pharma has a total planned capital expenditure worth Rs 800 crore for the current fiscal as well as fiscal 2023. It also wants to make an entry into the biologics market to become future-ready.

“Biologics CDMO market is growing at a 13-15% CAGR with limited growth in capacities. The company remains upbeat about utilizing its initial capacity of 10KL in collaboration with Fosun’s subsidiary Shanghai Henlius, which has 19 biosimilars under development,” said Dhamesha.

“A manufacturing contract for two-three biosimilars is expected in the next 12-18 months. The company is already planning for a 50KL capacity expansion. The operating margin in this business is expected to be in mid-thirties,” he added.

Meanwhile, Sharekhan believes that Gland Pharma's long-term levers remain intact and any correction in the stock price provides an opportunity to invest. The brokerage firm has set a target price of Rs 4,400 per share.

Gland Pharma is witnessing healthy traction across its businesses and sees the Rest of the World markets to be a key growth driver.

Based on increasing penetration in existing regions and tapping new geographies such as China for growth, Gland aims to increase revenue contribution from Rest of the World markets to 40% over the next three-four years from roughly 21% at present.

The company has a product pipeline in the US consisting of a total of 244 filling with 47 products awaiting approvals (translates into an addressable market size of $4 billion) is substantial. 

“Pursuing Sputnik V vaccine opportunity, albeit with a delay, has taken Gland closer to its long-term strategy of foraying in the lucrative biosimilar CDMO market, which provides strong growth visibility going ahead,” Sharekhan said in a note to clients.

However, Sharekhan remains cautious on higher raw material costs that could exert pressure on Gland Pharma's margins in the near term.