Q1FY24 Review: Eris Lifesciences: Targeting to accelerate organic growth

8 Aug 2023 , 01:01 PM

Eris’ Q1 revenue growth was muted, with high-single-digit growth on an organic basis in the India business (analysts of IIFL Capital Services estimate 7-8% YoY). However, mgmt’s execution in the acquired derma portfolio has been strong with Oaknet’s Ebitda margins improving QoQ from 27% to 35%, while the Ebitda drag from the Insulin business also halved QoQ. With a strong launch pipeline of 7-8 new products in H2FY24 (4 combination products, 2 at-risk opportunities, and 2 injectable diabetes products), Eris is targeting to further expand its CVM (covered market presence) and outperform IPM growth by 400bps with organic growth in Eris’ portfolio expected to accelerate to lowdouble-digits going forward. Analysts of IIFL Capital Services largely maintain their estimates of 14/19% revenue/Ebitda Cagr over FY23-26 and reiterate their BUY rating. Their TP of Rs880 is pegged at ~25x 2YF EPS. 

Eris’ India Branded business (excl. TGx) grew 21% YoY in Q1, aided by the acquisitions of derma portfolio from Oaknet, Glenmark and Dr. Reddy’s. Analysts of IIFL Capital Services estimate that Eris’ organic India business (incl. TGx) grew 7-8% YoY in Q1. Mgmt attributed muted organic growth to overall market growth being weak in Q1. While Oaknet’s Ebitda margins improved QoQ, Eris has been able to retain 75% of the business acquired from GNP/DRRD in the first quarter of integration and expects to start capturing 100% of the GNP/DRRD portfolio sales from Q2FY24. 

Strong pipeline of 7-8 new product launches in H2FY24, with Eris targeting to launch 4 combination products in diabetes/cardiac/neurology space (from its pipeline of 10 products) in Q3/Q4FY24, 2 at-risk opportunities of Linagliptin and FCM injection, and 2 more injectable diabetes products of Glargine and Liraglutide in Q4FY24. These launches, along with benefit of India price hikes from Q2, should enable Eris to accelerate the organic growth in its India portfolio to low-double-digits. Analysts of IIFL Capital Services forecast 10.7% Cagr in Eris’ organic India sales over FY23-26. 

Mgmt has reiterated its Ebitda margin guidance of ~35% for FY24 (vs 36.4% in Q1), as GM dilution in H2FY24 owing to new product launches and R&D investment of Rs300m for 10 pipeline combination products will be offset by continued margin improvement in the base India business, current profitability sustaining in Oaknet/acquired portfolio, and Ebitda break-even expected in the Insulin biz by Q4FY24.