Prabhudas Lilladher recommended accumulate rating on Eris Lifesciences with a target price of Rs 885 in its research report dated May 28, 2018.
Prabhudas Lilladher's research report on Eris Lifesciences
Acquired brands drive sales, margin drops on higher overhead: Eris sales, BEITDA and PAT grew by 16%, 46% and 21% YoY in Q4FY18. The integration of acquired business from Strides and UTH Healthcare helps in the growth of sales. The core business of Eris grew by 10% YoY. While gross margin increased by 60bps, its EBITDA margin declined by 500bps due to re-organisation costs of sales team and delayed productivity of new divisions and UTH healthcare (acquired business). Management expects lower base of FY18 and new sales team with focussed portfolio to reap benefits among the target market. Tax rate was higher at 10% in FY18 (vs 3% in FY17) due to contribution of acquired business of Strides vis-à-vis contribution of core business of Eris from tax benefit zone in Guwahati.
Outlook
Maintain Accumulate, Retain TP at Rs885: With transfer of acquired business in Guwahati plant along with higher utilisation rate, we expect Eris to maintian gross margin at 84-86% while higher productivity of MRs to increase EBITDA margin to 40% in FY19E-20E. With superior return ratios (ROE of over 40% in FY18E-20E), we expect Eris to trade at a PER of 23.4x to arrive at a target price (TP) of Rs885. The stock trades at 23.0x and 19.3x PE of FY19E and FY20E. Strong cash flows and lower leverage coupled with high capital return ratios will lead to high PERs for the company. We maintain Accumulate and rertain TP at Rs885.
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