This Pharma Stock Is Worth Buying, As Acquisition Could Boost Earnings

Sharekhan has recommended buying the stock of Gloand Pharma with a price target of Rs 2260. Gland Pharma (Gland) has announced the acquisition of 100% of French company Cenexi Group through its wholly-owned subsidiary Gland Pharma International PTE, Singapore for an equity value of EUR 120 million or Rs. 10.14 billion and an Enterprise Value (EV) of EUR 230 Mn or INR 19.43 billion, by entering into a Put Option agreement with Cenexi.

Deal to boost injectable business

According to Sharekhan, the deal is to boost up Gland Pharma's injectable focused Contract Development Manufacturing Organization (CDMO) business in Europe. Gland Pharma is one of the largest global generic injectables-focused companies in India. The given deal entails EV / EBITDA valuation multiple of 6.0x and EV / sales multiple of 1.2x on its CY22E numbers vs. 10.0x - 15.5x EV / EBITDA deal multiples seen in the recent past in the CDMO space. "Hence, the deal appears cheaper for Gland Pharma, especially when there has been a 700 bps increase in EBITDA margins for Cenexi in H1CY22 vs. CY21. Acquisition will strengthen Gland's presence in the sterile injectables space," Sharekhan has said.

Gland Pharma to expand its CDMO offerings in Europe

The acquisition is in line with Gland Pharma's strategic roadmap of building a European manufacturing presence in sterile injectables. Nearly 70% of Cenexi's revenue comes from sterile and injectable products. "The same is expected to grow to contribute 82% of the revenue over the next four years. Cenexi has an expertise to process specific substances such as hormones, controlled substances and oncology products with four Food and Drug Administration (FDA) approved manufacturing sites spread across Europe. The deal is expected to bring Gland Pharma with an access to the know-how and development abilities in sterile forms including vials, pre-filled syringes, and other innovative technologies such as ophthalmic gel and needleless injectors fill and finish. Also, the deal will increase Gland Pharma's customer base in biologic space," Sharekhan has said.

Sharp correction leaves an opportunity to buy the stock

The stock has corrected by 45% over the past six months and currently is trading at a reasonable valuation of 28x and 22x its FY2023E and FY2024E earnings, presenting attractive risk reward ratio for the stock. "However, the stock performance will be subject to its consistent improvement in the business performance. We retain a Buy rating on the stock with an unchanged price target of Rs. 2260," Sharekhan has said.

 

Disclaimer

The stocks have been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.