Gland Pharma shares gain 36% over issue price; neat USFDA record, strong sales to further aid growth

Newly listed Gland Pharma’s share price has soared 36% from its issue price in three trading sessions. On Tuesday the stock closed at Rs 2,047 per share up from the pharmaceutical firm’s issue price of Rs 1,500 apiece. The upward trajectory that the stock has taken was anticipated even before listing as heavy institutional buying was expected to come Gland Pharma’s way. Its unscathed regulatory compliance record, healthy sales in the US market and a strong parent in China’s Fosun Pharma is what makes Gland Pharma a hot favourite on Dalal Street.

Unmatched compliance record

“Gland Pharma has a proven track record of growth and profitability along with a consistent regulatory compliance history. It has never received a negative USFDA report. The future prospects are bright as it has 267 ANDA filings of which 215 are approved,” said Hemang Jani, Head – Equity Strategy, Broking & Distribution, Motilal Oswal Financial Services. Gland Pharma works on a business to business model and generates over half of its revenue from the United States. No other Indian generic pharma firm boasts of such high sales figures in the US market.

Post the listing, Fosun Pharma now holds a 58% stake in Gland. The parent company adds to the advantage of Gland Pharma. Analysts at Ambit Capital believe that Fosun gives Gland Pharma access to the Chinese market and favourable scale when procuring raw materials from the country. 

Ahead of Indian peers

70% of the company’s US filings are sterile injectables, while the remainder is split between oncology and ophthalmic. “A large proportion of relationships are IP-driven, which enables Gland to showcase both product development and manufacturing capabilities,” said Ambit capital in a report. Gland Pharma spends 4-5% of sales on research and development in order to develop and own IP rights of various filings. Amit said that Gland Pharma owns 38% of US ANDA  filings and has access to key APIs such as heparin and enoxaparin which no other Indian pharmaceutical players have. 

Ambit’s DCF target price of Rs 2,109 per share implies a 28x FY22E P/E, with 24% FY20-23 EPS CAGR. “Gland outsources Recipharm on RoCE, resulting in premium valuation scope to latter’s current 1-year 20x P/E,” they said while adding that re-rating could be driven by superior RoCE and growth outlook.

Key risks

Although the parent firm Fosun Pharma helps Gland in accessing Chinese markets and sourcing raw material, the biggest risk to the firm also stems from the same route. Geo-political tension between India and China could take a toll on Gland Pharma business. Another risk that is aligned with Gland Pharma is its concentration of customers. Top 5 customers of the firm account for 48-50% of sales. Although the concentration is not high, Ambit Capital believes that customer loss could jeopardize Gland Pharma’s sales base.