Q3FY23 Review: Gland Pharma: Earnings downgrade, limited visibility on near-term growth

24 Jan 2023 , 02:11 PM

Gland Pharma Q3 Ebitda was 17% below consensus estimates (in-line with IIFLe), as revenue was again impacted (down 10% QoQ) by component shortages (Heparin stoppers) and inventory correction this time for Enoxaparin in the US. After seeing inventory normalization in Micafungin in H1FY23, Gland’s US sales in Q3 (down USD14mn QoQ) was impacted by muted Enoxaparin sales of USD5mn in Q3 vs USD36mn in 1H. Although mgmt expects US Enoxaparin sales to sustain at USD50mn annual run-rate (vs pre-Covid run-rate of USD20- 25mn), the high-base of H1FY23 will present tough comparables for H1FY24, thereby driving muted performance for the next 2-3 quarters.

With component shortages and Enoxaparin supplies expected to normalize only gradually over the next 1-2 quarters, near-term pain for Gland is likely to continue especially given the higher competitive intensity in recent new product launches. Analysts of IIFL Capital Services further downgrade FY24/25 EPS by 6-7%, after having already cutting the estimates by 14-15% since Cenexi acquisition.

Analysts at IIFL Capital Services, believe Gland’s GM improvement of 350bps QoQ (ex-inventory write-offs in Q2) was driven by muted Enoxaparin sales, as Enoxaparin is likely a lower GM product. As Enoxaparin normalizes, they expect GMs to again moderate to 52% in FY24/25. However with operating leverage on other expenses led by RoW, they expect Ebitda margins to sustain at 30-31%.

Analysts at IIFL Capital Services maintain reduce rating on Gland Pharma at target price of Rs 1300.