Gland Pharma's growth trajectory to remain elevated in medium term

Margin expansion to support profits, clean regulatory track record to help sustain growth journey

The stock of Gland Pharma is up 56 per cent over its initial public offering (IPO) price on expectations that its expertise in the injectables space, a clean regulatory track record, and new launches will help sustain 25 per cent-plus growth rates over the next couple of years. India’s largest pharma IPO was listed last month and has gained 29 per cent since then. 

Among the reasons for investors being bullish about the company is the growth prospects over the near-to-medium term. After posting 21 per cent sales growth over the FY17-20 period, analysts, such as Nikhil Mathur of Ambit Capital, expect such a high growth rate to sustain. 

This is on the back of $60 billion worth of molecules facing a loss of exclusivity over the FY19-FY24 period, lower generic penetration, and perennial shortages. Much of the growth will be driven by the US market, which accounts for two-thirds of its revenues. Besides over 300 drug filings in that market, the company is expected to file 25 new filings every year expanding its product base dominated by complex products.

Further, growth is expected to come at higher profit margins given the company’s presence in limited competition injectables and its business-to-business or B2B operating model. Analysts expect its ope­r­ating profit margins, which came in at 36 per cent in FY20, to improve to around 40 per cent mark. This will be driven by an improving mix and hig­h­er utilisation. The increa­sed pro­portion of drugs for which it owns the intellectual prope­r­ty will help it get a share of profits. 

Another factor that may help its growth journey is the company’s clean regulatory compliance track record, even as its peers struggle to overcome the US FDA’s good manufacturing practices barrier. This helps maintain continuity in its largest market. 

What may offer an interesting growth opportunity for the company is the entry into the Chinese injectables market ($30 billion), where the company is expected to file multiple products, says Amey Chalke of Haitong Securities. Further, an optional play can be the vaccine manufacturing opportunity given its vial bottling capacity, he adds. 

A strong balance sheet and money raised from the IPO gives the company the flexibility to expand and look at acquisitions to boost its capabilities.

At the current price, the stock is trading at 30x its FY22 earnings estimates. While the recent price gain caps sharp upsides, investors with a longer time horizon will benefit from the growth story.