New Ampoule Line At Cenexi And Dr Reddy's Biologics Collaboration To Propel Revenue Growth And Enhance Earnings

Key Takeaways

• New high-capacity ampoule line and leadership changes are expected to increase manufacturing capacity, customer service, and strategic execution, boosting revenue and margins.
  
• Strategic collaborations and product launches in key markets aim to drive future revenue growth, stabilizing and expanding operations across regions.
  
• Gland Pharma faces revenue growth challenges and financial pressure due to issues at Cenexi and stagnating U.S. market performance.

Catalysts

Engages in manufacturing and sale of injectable formulations in India, the United States, Europe, Canada, Australia, New Zealand, and internationally.

• The installation of a new high-capacity ampoule line at Cenexi is expected to start commercial production in January 2025, which will significantly increase manufacturing capacity, improve customer service, and generate additional revenue. This will positively impact revenue and earnings.
  
• Delays in order pickup from key markets like Saudi Arabia are expected to resolve in the second half of the fiscal year, potentially boosting revenue as these markets stabilize and grow.
  
• A strategic biologics CDMO collaboration with Dr. Reddy's, utilizing Gland's manufacturing facility at Genome Valley, is likely to drive future revenue and create value, enhancing earnings from biologics manufacturing.
  
• The approval and launch of complex products targeting a $7.3 billion IQVIA market opportunity, with several products expected to be approved soon, could drive future revenue growth and improve earnings.
  
• New leadership with significant market experience, expected to drive growth in core and new markets, might improve strategic execution, potentially increasing revenue and strengthening net margins.

Gland Pharma Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gland Pharma's revenue will grow by 11.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.7% today to 18.8% in 3 years time.
• Analysts expect earnings to reach ₹15.2 billion (and earnings per share of ₹79.7) by about December 2027, up from ₹6.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹11.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.0x on those 2027 earnings, down from 42.4x today. This future PE is greater than the current PE for the IN Pharmaceuticals industry at 16.7x.
• Analysts expect the number of shares outstanding to grow by 5.02% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.15%, as per the Simply Wall St company report.

Gland Pharma Future Earnings Per Share Growth

Risks

• Gland Pharma's revenue growth was only 2% year-over-year, impacted by slower uptake in international markets and the shutdown at Cenexi, which suggests potential future revenue volatility.
  
• The EBITDA margin for Gland Pharma has decreased on a consolidated basis to 21%, primarily due to losses at Cenexi, bringing the risk of continued pressure on net margins.
  
• The ongoing issues at Cenexi, including temporary setbacks at the Braine-l'Alleud site and low operating volumes, have resulted in a negative EBITDA, which may continue to affect overall earnings adversely.
  
• Despite launching multiple new products, U.S. revenue has stagnated over the last three quarters, indicating challenges in gaining significant market traction, which could limit revenue growth.
  
• Cenexi's business reliance on annual shutdowns for maintenance and new capacity installations could lead to inconsistent operational performance and create pressures on its financial outcomes such as revenue and profitability.

Valuation

• The analysts have a consensus price target of ₹1813.25 for Gland Pharma 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 ₹3120.0, and the most bearish reporting a price target of just ₹1214.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹81.0 billion, earnings will come to ₹15.2 billion, and it would be trading on a PE ratio of 32.0x, assuming you use a discount rate of 12.2%.
  
• Given the current share price of ₹1779.45, the analyst's price target of ₹1813.25 is 1.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.