Eris Lifesciences: Need to put ‘Swiss’ Injectables deal in order

22 Feb 2024 , 11:47 AM

During its Investor meet, Eris’ mgmt highlighted company’s sharp focus on process management and doctor engagement initiatives, which has enabled the company to scale-up its acquired Derma portfolio and further strengthen its position in the Cardio-Diabetes segment. While Eris’ organic growth in India has been muted at 7- 8% over the past 2yr period owing to rationalisation of tail-end brands and product returns of expired batches, mgmt is hopeful of pick-up in organic growth driven by a robust pipeline of 26 products including potential launches of Dapagliflozin combinations, Glargine, Liraglutide over the next 12 months. Analysts of IIFL Capital Services factor-in the Swiss Parenterals acquisition into their estimates and expect the deal to be ~3/5% EPS accretive in FY25/26. Valuation re-rating for Eris remains contingent on pick-up in India organic growth. Maintain BUY given inexpensive valuations. Analysts of IIFL Capital Services TP of ₹1,060 is based on ~22x FY26 core EPS vs ~26-35x for other India-peers. 

Cleaner structure of Swiss will help to assuage investor concerns: While Eris’ Rs6.4bn acquisition of 51% stake in Swiss Parenterals (an RoW Injectables business) has raised capital allocation concerns owing to diversification away from India formulations business, analysts of IIFL Capital Services believe a key concern among investors has been acquisition of 19% stake in Swiss by Eris’ promoter group. Mgmt seems to be evaluating the deal structure given the investor feedback and a cleaner structure (with Eris acquiring the 19% stake, which is currently proposed to be acquired by Eris’ promoters) will help to address some of these concerns. 

Eris’ FY29 revenue guidance of Rs50bn implies 21% revenue Cagr over FY24-29, vs analysts of IIFL Capital Services current estimates where they have factored-in 16% revenue Cagr to Rs42bn in FY29. Analysts of IIFL Capital Services FY29 revenue forecast is 18% below company’s guidance, despite assuming 11-12% organic revenue Cagr in India and 20% Cagr for Swiss Parenterals, implying that Eris will be dependent on further M&A deals to meet its FY29 revenue aspiration. Mgmt indicated that India:Exports contribution to FY29 revenue will be 80:20% and Eris will continue to remain a predominantly India-focused company. 

New product launches to drive growth for Swiss: 

While Eris will leverage Swiss’ portfolio to build an Injectables business in India, Swiss will focus on new launches (including OSDs from Eris) to drive growth in RoW markets. Swiss is working on Iron deficiency products (Dextran, Sucrose, Ferric Carboxy Maltose), Peptides (Semaglutide, Octreotide, Suggamadex).