Gland Pharma stock zooms 13% after Q2 results, brokerages see worst behind

Shares of Gland Pharma soared over 13 percent on November 5 following the company’s July-September earnings, which according to brokerages, hint that the worst for the drugmaker might be behind.

At 12.54 pm, shares of Gland Pharma were trading at Rs 1,803 on the NSE. Given that the stock’s flattish performance this year has sharply underperformed the Nifty Pharma index’s 50 percent surge, analysts at Kotak Institutional Equities see the scope for further downside to be limited for Gland Pharma.

On the back of this, KIE upgraded the stock to an ‘add’ call from its previous ‘reduce’ rating, also lifting its price target for the stock by over 11 percent to Rs 1,625.

Now while the company’s net profit fell by 16 percent on year to Rs 163.5 crore on a modest 2 percent revenue rise to Rs 1,406 crore in Q2, the management sees better times going forward. “Our core regulated markets, particularly the United States, continue to perform well. Our overall performance is in line with expectations. Looking ahead, we remain focused on our strategic priorities, which include entering new markets and building a solid foundation for future growth,’ Srinivas Sadu, Executive Chairman and CEO, Gland Pharma said in an exchange filling.

During the quarter, Gland Pharma signed a binding term sheet with Dr Reddy’s Laboratories to form a strategic partnership in the biologics contract development and manufacturing organization sector. “This partnership will leverage our advanced biologics manufacturing facility at Genome Valley in Hyderabad. We are highly optimistic about the value this collaboration can create for both organisations, and we anticipate signing a definitive agreement soon,” the company stated in a release

Following up on this, Kotak Institutional Equities believes that Gland Pharma’s earnings have now bottomed out, marking a pivotal step forward in its biologics CDMO business after an extended period.

Meanwhile, under its new CEO, KIE plans to closely monitor Gland’s proposed B2C strategy in regulated markets, a shift that comes with some uncertainty given the CEO’s limited experience in these key pharma regions, which account for 75 percent of the company’s sales. Additionally, Kotak will keep an eye on growth in the Rest of World (RoW) markets. The brokerage also raised Gland’s FY25-27 EBITDA estimates by 2 percent each on account of higher base business margins.

In contrast, however, Goldman Sachs is of the view that incremental growth for the company’s base US business is likely to come at the cost of margins, prompting it to retain its ‘sell’ call on the stock with a price target of Rs 1,450.

Jefferies has also assigned a ‘hold’ call for Gland Pharma but has cut its price target to Rs 1,840 per share, stating that while the company’s Q2 performance met expectations, it did so against a backdrop of muted expectations.

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