Gland Pharma, Laurus Labs Shares Gain On Jefferies' 'Buy' Rating

Shares of Gland Pharma Ltd. and Laurus Labs Ltd. rose after Jefferies initiated coverage on the drugmakers with a 'buy'.

Dominance in generic injectables, less exposure to pricing risk and ability to increase biosimilar capacity augur well for Gland Pharma, the research house said in a note. Investments in active pharmaceutical ingredients, finished dosage and custom synthesis, and acquisition of biotech firm Richcore Lifesciences' are growth triggers for Laurus Labs, it said.

Jefferies has set a price target of Rs 4,556 apiece, implying a potential upside of 17.51%, on Gland Pharma. For Laurus Labs, it is Rs 628, implying a potential upside of 20.99%.

Jefferies On Gland Pharma

• Initiates coverage with a 'buy', with a price target at Rs 4,556—an implied return of 17.51%.

• Gland Pharma's dominance in generic injectables, track record on the U.S. FDA audits, and less exposure to pricing risk augur well.

• The company will benefit from economies of scale due to specialisation in injectables.

• The company does not face the pricing pressure that other Indian generic firms face and has capabilities to pass on cost pressure, if it emerges.

• It has adequate capacity to venture into new markets.

• With 1,501 products registered across 60 countries, volume growth and new product launches will aid growth in the U.S. and rest of the world.

• The company has pending abbreviated new drug applications and tentative approvals for products worth $7.5 billion.

• It can leverage its relationship with promoter, Fosun Pharma, to penetrate into Latin American markets like Mexico.

• The company's strategy to increase biosimilar capacity from 10 kl to 60 kl could be a key trigger for growth.

• Its growth prospects remain strong with healthy pipeline of products in the U.S.

• Values Gland Pharma at 36.5 times FY24E earnings per share; top pick in the sector.

Shares of Gland Pharma rose as much as 2.71%, the biggest intraday gain in over a week, to Rs 3,991 apiece before closing with gains of 1.45%. Of the 17 analysts tracking the company, 13 maintain a 'buy' and two each recommend a 'hold' and a 'sell', according to Bloomberg data. The overall consensus 12-month price target implies an upside of 5.1%.

Jefferies on Laurus Labs

• Initiates coverage with a 'buy' and a price target of Rs 628 apiece—an implied return of 20.99%.

• Laurus Labs' diversification strategy and investments in API, finished dosage and custom synthesis to drive growth.

• Recent acquisition of Richcore is likely to provide the company a launching pad in recombinant animal-free food proteins.

• Efforts to ensure self-sufficiency to the custom synthesis business are a major positive.

• The company has attained a lion's market share in antiretroviral APIs. API business will now be driven by non-oncology and non-antiretroviral APIs.

• Expects API business to grow 8% during FY21-FY24.

• Custom synthesis will be a valuation driver with the company's recent tie-up with a European life science player for the supply of niche APIs to drive growth.

• Expects Laurus Labs to maintain its leadership position in the market.

• The company has initiated a large capex cycle that is expected to double its gross block—total value of assets a company owns.

• Builds in 17%/17%/18% revenue/Ebitda/earning per share growth over FY21-24.

• Values Laurus Labs at 21.5 times FY24E earnings per share.

Shares of Laurus Labs rose as much as 5%, the biggest intraday gain in over five weeks, to Rs 546 apiece, before ending the session with gains of 1.58%. Of the 13 analysts tracking the company, nine maintain a 'buy' and four suggest a 'sell'. The overall consensus 12-month price target implies an upside of 13%.