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Nirmal Bang Report
Eris Lifesciences Ltd.'s adjusted net profit is expected to clock 31% compound annual growth rate over FY23-FY25E mainly on the back of 21.7% CAGR in revenue and improvement of 452 basis points in Ebitda margin to 36.4%.
Ebitda margin is expected to improve from here on mainly on the back of:
Sharp improvement in Oaknet margins and MR productivity with consolidation of the acquired Dr. Reddy's Laboratories Ltd. and Glenmark Pharmaceuticals Ltd.'s portfolios, shifting to in-house manufacturing and synergy benefits with the standalone business,
Reduced loss in the Insulin segment (expected to reach breakeven in FY24) and
Operational leverage, especially driven by scale-up in new launches.
Industry-leading growth in revenue is expected to continue due to its strong focus on the chronic portfolio, market share gain in existing products, new launches and potential inorganic growth opportunities.
The company is currently trading at 22.3 times/17.3 times price-to-earning on FY24E/FY25E and 15.2 times/11.8 times enterprise value/Ebitda on FY24E/FY25E numbers.
We like Eris Life due to its pure domestic play, speciality focus, strong financials, healthy balance sheet and high return ratios.
We maintain 'Buy' with a target price of Rs 1,022, valuing it at 14 times June-25E EV/Ebitda.
We value Eris Life on EV/Ebitda basis as it removes tax rate volatility (especially post the Guwahati plant coming out from eligible tax exemption) and focus on the core operational performance.
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