Motilal Oswal reiterates 'buy' call on this pharma company; finds valuation attractive

After a weak FY23, the mid-cap pharma major Gland Pharma has shown resilience in the past three quarters of FY24, and in this backdrop, domestic brokerage Motilal Oswal Financial Services has reiterated its ‘buy’ view on the stock with a target of Rs 2240 per share, signifying nearly 32 per cent upside potential.

Below are the three key reasons as listed by the brokerage that will drive Gland Pharma’s stock price higher.

Core markets back on growth path:

After strong performance over FY18-22 in core markets, the company confronted several headwinds including financial distress of key customer Athenex and excess inventory among others. Further, the situation was worsened by supply shortages of stoppers, resulting in an 11% YoY decline in sales in FY23 to Rs 2400 crore, added the brokerage. Nonetheless, after strong launches and re-launches over the past three quarters, sales have registered  8.5 per cent year-on-year growth in sales. Also, the maker of generic injectables added new customers during the period.  So, considering the company’s robust product pipeline, the brokerage estimates 11 per cent CAGR in sales over FY24-26 to Rs 4,000 crore. 

Rest of the world (RoW markets)/India is looking to recover:

After strong traction in key products over FY18-22, the company’s sales in RoW markets declined on the back of several issues, including supply chain disruption. However, as the company is strengthening its base by adding new markets and working on new registrations, the brokerage expects RoW sales to scale to Rs 690 crore, logging a 11 per cent CAGR over FY24-26.

Additionally, in the Indian market also, the company’s sales during 9MFY24 revived and grew by 11.4 per cent year-on-year. Besides, even though the company has stated that it would  reduce investment in the Indian segment, it could seek for some growth opportunities and accordingly, Motilal Oswal expects a 13 per cent CAGR in India sales over FY24-26. 

Investing in new areas for improved growth prospects:

The company other than its base business is building more levers. The company is expanding its contract development and manufacturing organisation (CDMO) offering in European markets. Also, it has invested to develop capabilities in the biosimilar space for expanding differentiated offerings. In addition, the company continues to file products and has gained access to the China market as well.  

Motilal Oswal, after a stable FY24,  expects the company to deliver a 20 per cent earnings CAGR over FY24-26 on the back of superior performance in core markets of the US/EU/Canada/Australia and ROW markets, supported by improving Cenexi operations. Also, considering the stock’s attractive valuations  trading at 24x FY26E EPS, the brokerage has reiterated its 'buy' on the stock.Gland Pharma over the last one year has outperformed the Nifty benchmark with 51 per cent return.

The company commanding a market capitalisation of Rs 29,201 crore is engaged in manufacturing small volume parenterals (SVPs) and contract development services.