'Battling on multiple fronts': Gland Pharma shares up 5% despite subdued Q4; here's target price

Gland Pharma reported a subdued fourth quarter in FY2025, aligning with Kotak Institutional Equities' estimates but falling below consensus expectations. The company's performance was impacted by a year-on-year decline in base business sales across geographies, attributed to fewer new launches and milestone income. Despite quarter-on-quarter sales growth at Cenexi, losses continued to widen.

In response, Gland reiterated its guidance for Cenexi to achieve EBITDA breakeven by the third quarter of FY2026. Kotak foresees a recovery in Gland’s organic US and Rest of World (RoW) sales from FY2026, forecasting a 14% ex-Cenexi sales CAGR over FY2025-28. However, significant benefits from biologics CDMO and GLP-1 are not expected until post-FY2027.

Gland's overall sales for Q4FY25 stood at Rs1,420 crore, marking a 7% year-on-year decrease, driven by a 12% decline in base business (excluding Cenexi). This decline was mainly due to reduced new launches and milestone income, coupled with mid-single-digit pricing pressure. Consequently, core gross margins dropped by 200 basis points to 60.8%, and EBITDA margins decreased by 30 basis points to 38.3%.

Gland aims to invest over Rs480 crore in Cenexi over the next three years, continuing its investment phase. This move is expected to sustain suboptimal returns on invested capital from the acquisition. The company is targeting mid-teens topline growth for FY2026, backed by new launches and client onboarding, projecting a 12% organic US sales CAGR over FY2025-28.

In the RoW markets, Gland anticipates an 18% sales CAGR over FY2025-28, driven by a focus on multiple markets. The company forecasts approximately Rs100 crore in sales from biologics contracts in FY2026 and plans to expand biologics capacity by 15kL. Additionally, Gland aims to increase cartridge capacities 2.5 times, accommodating a rising client base.

Kotak Institutional Equities maintains a cautious outlook on Gland Pharma, retaining a REDUCE rating and lowering the fair value to Rs1,500. The outlook reflects lower sales and EBITDA margin assumptions due to ongoing issues with Cenexi and sluggish base growth. Despite a challenging FY2025, the firm remains valued at 20X P/E, with projections rolled forward to June 2027.

Under the leadership of a new CEO, Gland's progress in its B2C strategy for regulated markets and RoW traction will be closely monitored. The company's focus remains on navigating US tariffs and addressing ongoing delays in resolving Cenexi's challenges while seeking growth opportunities across its business segments.