Quick Pointers:
Approved Liraglutide and Glargine from MJ’s pipeline set for Q4 launch.
Signed a definitive agreement for acquisition of 51% equity stake in Swiss Parenterals. This gives ERIS entry into Sterile Injectables and RoW markets
Eris Lifesciences (ERIS) reported healthy EBITDA of Rs1.76bn (up 28% YoY) with sharp improvement in OPM at 35.8% (up 420bps YoY). We expect margins to sustain as revenue scales up from recent acquisitions which is currently operating at sub optimal profitability. The company has multiple growth levers such as broad based offerings in derma segment, opportunities in cardio metabolic market with patent expirations and benefits of operating leverage, as revenue scales up from these acquisitions. We maintain ‘BUY’ rating with revised TP of Rs1,100 (Rs1050 earlier), valuing at 15x EV/EBITDA on FY26E as we roll forward.
In-line revenues: Overall branded formulation business grew 16% aided by acquired derma portfolio. Four large derma brands run rate improved YoY. Mgmt cited 7-8% organic growth. During 9MFY24 revenues from insulin business stood at Rs 310mn.
Healthy EBITDA margins: On operational front EBITDA came in at Rs 1.7bn (up 28% YoY but down 3% QoQ). EBITDA margins improved YoY and stood at 36.1% (up 370bps YoY). The YoY improvement was largely due to higher GMs and scale up in Oaknet’s profitability. Gross margin increased YoY, by 270bps to 81.7% during the quarter on account of better product mix. PAT came in at Rs1.01bn (flat YoY), against our estimate of Rs 995mn. Tax came stood at 12.4%. Depreciation & finance charges came in higher as expected reflecting recent acquisitions.
Key concall takeaways: Diabetes market share increased from 3.5% to 5%, VMN from 1% to 2.5%. Core products (Cardiovascular, Diabetes, Vitamin) account for 63% of portfolio. Emerging therapies (Dermatology, CNS, Women's Health, Nephrology) make up nearly 30%. The acquired portfolio from Biocon will be fully consolidated from Q4. Eris expects gross margin from this portfolio to improve to 70% from ~50-55%. Successfully comercialised Sitagliptin+Gliclazide and Dapagliflozin-Gliclazide launched in Dec’23. Planned 4 launches in Q4FY24 including Glargine and Liraglutide from MJ’s pipeline.
New Acquisition: Eris acquires 51% stake in Swiss Parenterals which gives ERIS entry into Sterile Injectables and RoW markets. Total consideration paid Rs6.4bn for 51% stake of which Rs2bn to be paid at time of closing deal and remaining will be paid after 12 months. Current revenue run rate of overall portfolio stood at Rs 3bn with ~37% OPM. Eris will leverage its distribution network platform across hospitals and Swiss product range to establish a Small Volume Parenterals branded Formulations business in India. Net debt at company level stood at Rs 8.9bn.
