Gland Pharma shares plunge 14%, take 2-day fall to 31%. Here's the main reason behind selloff

Shares of Gland Pharma Ltd plunged 14 per cent in Monday's trade, taking its two-day fall to 31 per cent, as March quarter profit plunged 72 per cent YoY due to soft demand production shutdown at one of its facilities in Telangana. Analysts said the management cited multiple headwinds that hit the Mach quarter results, but clarity over what's ahead was largely missing.

As Elara Securities put it: "The management alluded to multiple headwinds that hit the business in Q4, including the temporary shutdown in a production line and reduced supplies to a customer that is in financial difficulty and continued price erosion in the US market. But the granular details seem unconvincing – Thus, we are not confident of a bottom emerging regarding the sustainable level of revenue/profitability."

Elara said the management also failed to provide any clear visibility on stabilisation of the operations and improvement thereon. "Given the B2B nature of Gland's business, we find it difficult to ascertain the depth of the concerns and await clear signs on stability in the business. Bankruptcy of an important customer adds to the uncertainty," it said.

Shares of Gland Pharma hit a new low of Rs 923 on BSE, down 13.40 per cent. The stock had fallen 20 per cent in the previous session. The tw0-day fall stood at 31.04 per cent.

Nomura India, which has a target of Rs 1,157 on the stock, said the company has refrained from providing any guidance on revenue growth and Ebitda margin. This brokerage has cut its earnings estimates by 15-17 per cent for FY24 and FY25.

"For Gland Pharma, we have assessed the fair value range of 15-20 times one-year-forward earnings. Given the increased uncertainty, and vulnerability to generic market pressures, we expect the stock to trade toward the lower end of this range," it said.

Motilal Oswal Securities has in fact cut its earnings by 22-36 per cent for FY24 and FY25 factoring in reduction in scope of business from a bankrupt customer, b) gradual revival in business due to shift of business by another customer to alternate supplier, and reduced share of profit due to higher competition in existing product portfolio.

It, however, has a target of Rs 1,460, expect a slow recovery over the next 12-15 months aided by new launches in China/other regulated markets, newer contracts in CDMO segment and inventory rationalisation of existing products.

The drugmaker reported a 72 per cent year-on-year (YoY) drop in net profit to Rs 79 crore in Q4FY23 due to a production shutdown at one of its facilities in Telangana and soft demand. The company had posted a net profit of Rs 285 crore in the same quarter of the previous year. Gland Pharma said the production line shut down in Q4FY23 in the Pashamylaram Penems facility due to line upgradation and reduced business from the domestic B2C division along with softer off-take in the rest-of-the-world (ROW) market due to tender seasonality affected its revenues.