Gland Pharma Ltd.: The Indian IPO that saw tepid bids 4 months ago is spinning money now


NEW DELHI: This IPO barely sailed through in November 2020 with a lot of struggle. The quotas reserved for HNIs and retail investors in the IPO remained undersubscribed. That was when the shares were up for grabs at Rs 1,500 apiece.

On Thursday, the scrip climbed 10 per cent to Rs 2,677 apiece and was up 78 per cent from the issue price. While many analysts believe the stock is priced to perfection, some others project it to rise up to Rs 3,000, which would mean a 100 per cent return on the issue price.

Nomura India this week initiated coverage of the stock with a ‘buy’ recommendation. The stock is Gland Pharma.

The brokerage said the stock can trade at a premium to the generics companies with front-end presence, given the less volatile earnings and a more capital efficient business model. It said the medium-term growth prospects of the company are supported by the scope to expand into new geographies, new contracts and potential mergers and acquisitions (M&As).

For now, Nomura has refrained from assigning a higher valuation multiple to Gland, given inherent risks in generics, such as regulatory uncertainty, price deflation and inherent slowdown in growth as the base expands.

The foreign brokerage had a price target of Rs 2,637 on the stock on March 2, which the stock took just two days to breach at Tuesday’s closing price of Rs 2,349.85 apiece.

Sharekhan initiated coverage of the stock with a ‘buy’ call on February 26 and set a price target of Rs 3,040. This brokerage said consistent shortage of injectables in the US offers substantial growth opportunities. An entry in the Chinese generic injectable markets is expected to be a key growth driver, as Gland plans to file 60 products in China, the brokerage said.

“Gland’s strong capabilities are well supported by a sturdy R&D muscle, which alludes to a robust product pipeline. Cumulatively, this points to the company’s ability to consistently commercialise its product pipeline and gain market share. Geographically, the US forms a strong base for the company’s growth while rest of the world markets are expected to grow at a sturdy pace. Further, Gland has a higher degree of vertical integration across its product categories, which would enhance operational efficiencies, leading to margin expansion,” Sharekhan said.

The brokerage expects Gland to report a compounded annual growth rate of 23.7 per cent in sales and 25.7 per cent in PAT over FY20-23.

Gland Pharma is engaged in injectable manufacturing, which requires strong adherence to quality standards with complexities involved in manufacturing processes. This has resulted in high barriers in scaling up volumes versus other dosage forms, frequent compliance issues and lower erosion as compared to orals.

Kotak Securities said Gland’s strength lies in its strong focus on quality and a consistent track record of compliance, cost competitiveness backed by scale benefits and vertical integration and maintaining reliable supplies in high volume products.

Analysts said the US market saw a shortage of over 125 products every year during 2014–2019, out of which 40–60 per cent were injectables. Quality and compliance-related issues were cited among the major reasons for the shortage.

There are at least 12 products in Gland’s existing, filed and tentative portfolios in shortage in the US, with an addressable market size of $450 million, which presents better opportunities to grow sales and expand margins.

“Gland is also in the process of increasing capacity to manufacture APIs in house. This would enable better profitability with enhanced backward integration. Accordingly, we expect Gland’s Ebitda margin to expand 200 bps to 38.2 per cent over FY20-23. The free cash flow from the existing business provides enough ammunition for potential inorganic opportunities,” said Motilal Oswal Securities. This brokerage has a price target of Rs 2,700 on the stock.



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