Biologics Licensing Will Open New Market Opportunities With Aflibercept

Key Takeaways

• Strategic partnerships and exclusive supply agreements in the CDMO sector present opportunities for revenue growth through increased commercialization.
  
• New product launches, capacity expansions, and licensing high-margin biologics are key drivers for revenue growth and enhanced earnings.
  
• Shilpa Medicare's revenue volatility is driven by reliance on specific clients, non-oncology market challenges, and dependency on successful product launches and milestone achievements.

Catalysts

Manufactures and sells active pharmaceutical ingredients (APIs), finished dosage formulations, biosimilars, recombinant albumin in India, the United States, Europe, and internationally.

• Shilpa Medicare is focusing on launching four new oncology products in the upcoming financial year, which may significantly boost revenue.
  
• Expansion efforts such as the capacity increase for Tranexamic acid and new launches in the non-oncology segment are expected to drive revenue growth.
  
• The company's strategic partnerships and exclusive supply agreements, particularly in the CDMO sector, highlight opportunities to enhance earnings through increased commercialization.
  
• Successful regulatory audits and product approvals in multiple international markets could improve net margins by allowing Shilpa Medicare to capture market share with complex, high-margin products.
  
• The licensing of innovative biologic products, including a potential $1 billion market opportunity with aflibercept, could drive a significant boost in revenue and improve overall earnings.

Shilpa Medicare Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shilpa Medicare's revenue will grow by 37.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 31.1% in 3 years time.
• Analysts expect earnings to reach ₹10.0 billion (and earnings per share of ₹101.94) by about March 2028, up from ₹882.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.3x on those 2028 earnings, down from 66.0x today. This future PE is lower than the current PE for the IN Pharmaceuticals industry at 28.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

Shilpa Medicare Future Earnings Per Share Growth

Risks

• The decline in the oncology API business due to issues with a major customer, Intas, highlights revenue volatility and a reliance on specific client relationships, potentially affecting future earnings.
  
• Non-oncology API sales have decreased as well, indicating potential market saturation or competition, which might adversely impact revenue in the short term.
  
• There is dependency on successful product launches, such as nilotinib, axitinib, and CDMO projects, to drive revenue growth, which could be at risk if these launches are delayed or face competitive pressures, affecting overall revenue.
  
• Licensing income is described as a significant revenue driver, but its variability and dependency on achieving specific milestones may lead to fluctuating revenue streams, impacting financial stability.
  
• The biologics segment, while showing potential, is still in developmental phases with capital tied up in non-commercialized assets, exposing the company to the risk of delayed revenue generation and affecting net margins.

Valuation

• The analysts have a consensus price target of ₹1208.0 for Shilpa Medicare based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1525.0, and the most bearish reporting a price target of just ₹891.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹32.1 billion, earnings will come to ₹10.0 billion, and it would be trading on a PE ratio of 18.3x, assuming you use a discount rate of 12.5%.
• Given the current share price of ₹671.15, the analyst price target of ₹1208.0 is 44.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.