After 100% gain since Nov, can the rally in Gland Pharma stock continue?

Gland's prospects remain strong, say analysts, as it has a robust pipeline of products with 50 pending Abbreviated New Drug Applications (ANDAs) and a healthy filing rate of 21 ANDAs in 9MFY21

Gland Pharma has already doubled money for those investors who picked the stock at the time of its initial public offering (IPO) in November 2020. And now, the firm's March quarter results have convinced analysts of more upside as they see growth prospects for Gland going ahead.

On Tuesday, the stock hit an all-time high of Rs 3,124.75 on the BSE, up 12 per cent over its previous close, following a 34 per cent year-on-year (YoY) rise in its consolidated net profit to Rs 260.4 crore in the March 2021 quarter (Q4FY21) on robust sales. The stock has rallied a whopping 108 per cent over its issue price of Rs 1,500 and 83 per cent over its listing price of Rs 1,710.

"The growth in the March quarter was better-than-expected, led by a superior product mix and better operating leverage. It is scaling up its Covid-19 vaccine manufacturing as well as expanding its sterile injectable, API, Oncology facilities to cater to upcoming launches," said Tushar Manudhane, research analyst at Motilal Oswal Financial Services.

The company's consolidated revenue grew 40 per cent YoY to Rs 887.7 crore for the quarter under consideration while the EBITDA (earnings before interest, tax, depreciation and amortisation) jumped 37 per cent YoY to Rs 330 crore.

Gland's prospects remain strong, say analysts, as it has a robust pipeline of products with 50 pending Abbreviated New Drug Applications (ANDAs) and a healthy filing rate of 21 ANDAs in nine months of FY21.

"Entry into new markets (including China), the potential for increasing market share in recently launched products along with higher traction in Covid-related products provide solid medium-term growth visibility," said analysts at Kotak Institutional Equities (KIE).

Gland has been identified as one of the manufacturers for the Sputnik V vaccine, having signed an agreement with the Russian Direct Investment Fund to manufacture 250 million doses.  

The company has recently acquired assets of Vitane Biologics, which analysts say signals its intent to explore new business areas, especially in high-growth areas of biologics CDMO. 

The management has guided that this facility would enable Gland to manufacture 252 million doses of Sputnik V vaccine over a one-year period, which as per KIE could provide windfall gain in the near-term for Gland, and a successful execution will position the company well for potential vaccine CMO opportunities in the future.

Manudhane raised the FY22E/FY23E EPS estimate for Gland by 5 per cent/4 per cent and expects a 26 per cent earnings CAGR over FY21-23E. The brokerage has a BUY rating on the stock and values Gland at P/E multiple of 31x to arrive at a target price of Rs 3,280.

KIE, however, has raised red flags on the company's valuations. At 30 times FY2023E EPS, positives are largely priced in the medium term, said the brokerage and has a REDUCE rating with a fair value of Rs 2,550. The brokerage increased FY2022-23E EPS estimates by 3-4 per cent each to factor in higher supplies of Covid-related drugs and increasing market share in certain key products.

"The company has spent massively on expansion and they have one of the best vaccine production capacities. The stock is pricey, but with the market in the euphoria phase, a further upside cannot be ruled out," AK Prabhakar, head of research at IDBI Capital said countering valuation concerns.