Gland Pharma share price soars 20% to hit upper circuit on Q1 results; what should you do with the stock?

Gland Pharma share price jumped 20 per cent to hit their upper circuit on the BSE on Tuesday, a day after the pharma company announced its first-quarter (Q1FY24) earnings.

Gland Pharma reported a 41 per cent jump in first-quarter revenue boosted by the acquisition of Cenexi, but its profit fell on a year-on-year basis. The Hyderabad-based company posted a 15 per cent year-on-year decline in consolidated net profit at ₹194 crore for Q1FY24. In the same quarter last year, the company's net profit was ₹229.2 crore.

Gland Pharma's share price opened at ₹1,480 on BSE as compared to the previous close of ₹1,343.85. The Gland Pharma shares further rose 20 per cent to hit their upper price band of ₹1,612.60 on BSE.

Shares of Gland Pharma have performed poorly in the last one year, falling almost 31 per cent while the equity benchmark Sensex has gained over 12 per cent in the same period. 

Brokerages upbeat post-better-than-expected Q1FY24

Brokerage firms highlighted Gland Pharma reported better-than-expected Q1 numbers as they appear optimistic about the company's growth prospects. 

Brokerage firm Motilal Oswal Financial Services gave a buy call on the stock with a target price of ₹1,560, citing Gland Pharma posted better-than-expected Q1FY24 performance.

"After a lacklustre Q4FY23, Gland Pharma has exhibited an improvement in business from core markets as well as stability in India and ROW (rest of the world) businesses. The overall performance has improved to some extent due to a higher profit share component as well for the quarter," Motilal said.

The brokerage firm has raised its earnings estimates by 8.5 per cent and 5 per cent for FY24 and FY25 factoring in a faster revival of the lost business by adding new customers, price stability in the base portfolio, and an increase in milestone income.

"We value Gland Pharma at 23 times 12-month forward earnings to arrive at our target price of ₹1,560. Gland Pharma remains on track to not only revive the base business but also to (a) increase its offerings in newer markets like China, (b) build a niche pipeline for regulated markets, and (c) enhance the scope of synergy from the Cenexi acquisition," said Motilal Oswal.

On the other hand, brokerage firm Kotak Institutional Equities upgraded Gland Pharma stock to a 'reduce' from a 'sell' and raised the target price to ₹1,300 from ₹1,075 earlier.

The brokerage firm said Gland’s sequential recovery in the base business in Q1FY24 was in line with its estimates.

"While concerns about the long-term growth and margin outlook remain, we highlight that, unlike its commentary in May 2023, when Gland’s management had limited visibility on client-specific challenges among other issues, the company has now alluded to having greater visibility on the demand front. In addition, higher confidence in the margin trajectory of the base business augurs well," said Kotak.

"With Cenexi’s disclosed gross margins being significantly higher than our estimates, we tweak our assumptions. This leads to a 3-6 per cent earnings per share (EPS) upgrade to our estimates. Apart from slightly improved demand visibility, the base business EBITDA margin in Q1FY24 also recovered 780 bps quarter-on-quarter from the lows of Q4FY23, providing higher confidence in the margin trajectory of the base business. As a result, we are raising our target multiple for Gland from 18 times to 20 times EPS," said Kotak.

Kotak expects the company to report a 10 per cent organic sales CAGR over FY2023-26E.

However, Kotak said it remains concerned about any "impact on Gland’sm margins due to the acquisition of Sagent Pharma (one of Gland’s key clients, which has been reporting heavy operating losses) by Gland’s ex-promoter."

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