Gland Pharma shares tank 20% to hit new low; should you buy, sell or hold?

Shares of Gland Pharma hit a lower circuit on Friday to hit its new record lows after a disappointing performance for another quarter. The stock tumbled 20 per cent to Rs 1070.80, and its market capitalization tumbled below Rs 18,000 crore mark during the day.

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.

Shares of Gland Pharma are down 75 per cent from it's all-time high around Rs 4,300 in the August 2021, while the stock has wiped out two-third of its value from its 52-week high at Rs 3,176.75 on May 23 last year. The stock is down 40 per cent in the last one month.

The pharma firm's revenue from operations slumped 29 per cent YoY to Rs 785 crore in Q4FY23. Its EBITDA for Q4FY23 came in at Rs 168 crore, down by 52 per cent on a yearly comparison while EBITDA margins stood at 21 per cent, taking a hit of 1,100 basis points. Its margins were around 38 per cent when the stock was in the pink of its health.

Gland’s overall performance continues to disappoint, with sales and EBITDA margins sinking to new lows in 4QFY23. The demand environment remains challenging, with elevated competitive intensity in the US impacting sales in key existing products such as Micafungin, Enoxaparin and Heparin and ramp-up of new launches, said Kotak Institutional Equities.

Apart from competition, we expect inventory destocking and certain client-specific issues to also keep Gland’s profitability under check. Owing to continued challenges on multiple fronts, we expect growth and margins to reset downward to a new normal, it added while downgrading the stock to 'sell' from 'reduce' with a new fair value of Rs 1,075 (Rs 1,335 earlier).

However, not every brokerage firm is negative on the counter even after another washout quarter with multiple headwinds. A few others remain positive on the stock and see up to 37 per cent upside potential in the stock, expecting a gradual recovery in the coming months.

While the multiple headwinds on revenue and operational cost have hit its FY23 performance, we expect a slow recovery over the next 12-15 months aided by new launches in China and other regulated markets, newer contracts in CDMO segment and inventory rationalization of existing products, said Motilal Oswal retaining a 'buy' with a target price of Rs 1,460.

"We cut our earnings by 36 per cent and 22 per cent for FY24E and FY25E, respectively factoring in reduction in scope of business from a bankrupt customer, 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 said.

Gland Pharma's revenue majorly fell on account of one of the partner filings for bankruptcy which led to a miss in volume offtake, high competition in molecules Enoxaprin and Heparin Sodium with the entry of more Chinese players, and production line shutdown at Dundagal facility for insulin, said Axis Securities.

"Lower volume uptick and high fixed costs have led to the lowest EBITDA margins of 21 per cent in the last quarter. We expect US market sales growth of 4 per cent YoY for Gland Pharma in the core markets over a longer period and high single-digit growth in India and RoW over a long-term outlook," it added with a hold rating a target price of Rs 1,400, which was Rs 1,500 earlier.


(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

Also read:  LIC, ICICI Pru Life, HDFC Life, SBI Life: Which life insurance stock to buy now?

Also read: Adani group-Hindenburg row: 65 allegations, replies, timeline, group level debt, share pledges & more