Home / News / India /  Pharma stock may rally over 27% as brokerage sees upside

Gland Pharma remains on track to deliver growth, but at the same time, it continues to be vigilant about not being over dependent on a specific geography (United States), said brokerage Nirmal Bang in a note as it hosted the Gland Pharma management at its Annual Investor Conference to discuss the company’s business outlook. 

“It has established itself in the small molecules business and recognizes the need to build capabilities around large molecules (biologics). It continues to chase CDMO opportunities on the biologics front and thus leverage the existing infrastructure, which was built for vaccines. With Rs30,000mn in cash, acquisitions remain a key growth lever. It continues to evaluate options on this front," the note stated.

The brokerage house has a Buy rating on Gland Pharma shares with a target price of 3,575 apiece, implying a potential upside of over 27% from the current stock level. The pharma stock has fallen about 28% in 2022 (YTD) so far, whereas is down over 10% in a year's period.

“Gland Pharma does not see significant enhancement in opex on account of CDMO business going forward given that costs have already been absorbed in 4QFY22. Capex for FY23 should be ~Rs3,000mn. Capex will focus on building capacity, with FY24 being the year in which small orders will start trickling in for the company. Gland Pharma expects a gestation period of 3-5 years before the CDMO business starts to have a meaningful impact on the company’s margins," Nirmal Bang added.

Gland Pharma will have a single-minded focus on EBITDA margin rather than gross margin. EBITDA margin will remain subdued for the next 2 years. Further, rise in power & fuel cost has been an EBITDA eroding factor for the company and levers will kick in FY25 onwards while sustaining 35-37% EBITDA margin going forward, highlighted the brokerage in the note.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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