Gland Pharma shares zoom 13% despite 16% YoY drop in Q2 profit; here's why

Shares of Gland Pharma Ltd surged 13.32 per cent to hit a day high of Rs 1,824.20 in Tuesday's trade. Today's sharp rise in the share price came even as the pharma company recorded a 16 per cent drop in its September 2024 quarter net profit. The generic injectable-focused company's consolidated net profit declined to Rs 163.5 crore in Q2 FY25 from Rs 194 crore in the year-ago period. Consolidated revenue, however, increased 2 per cent year-on-year (YoY) to Rs 1,405.8 crore.

Kotak Institutional Equities has upgraded Gland Pharma's stock to 'Reduce' from 'Sell' with a revised target price of Rs 1,625. "On muted expectations, Gland reported an 8 per cent EBITDA beat in Q2 FY25 led by the base business. Cenexi's subdued performance was largely in line with our estimates. We bake in a sales recovery hereon in the core business as well as Cenexi. Even as the progress will be gradual, we believe Gland's earnings have now bottomed out. Also, after a long wait, the company has made tangible progress in biologics CDMO. The stock has corrected 24 per cent in the past three months and has given flat returns in the past one year (versus 50 per cent for Nifty Pharma), which restricts significant downside hereon," the brokerage stated. Cenexi is a contract manufacturing company acquired by Gland Pharma last year.

"Despite lower milestone income and profit share, core gross margins improved around 300 basis points QoQ in Q2 FY25 on a low base (higher Heparin volumes in Q1 FY25)," it added.

"Even as the recovery will be gradual, we believe Gland's earnings have now bottomed out and raise our target PE multiple a notch from 21x to 22x. We raise Gland's FY2025-27E EBITDA by ~2 per cent each on account of higher base business margins," Kotak further said.

Axis Securities also underscored that Gland Pharma posted better-than-expected Q2 FY25 results. "Gland (Ex-Cenexi) registered a muted revenue growth of 5.1 per cent YoY due to the annual shutdown of planned maintenance, maintaining EBITDA margins of ~34.3 per cent, which is in line with preceding quarters on a YoY basis," it said.

"The acquired business Cenexi reported revenue of Rs 340 crore (-5 per cent YoY), EBITDA loss of –Rs 69 crore, and EBITDA margins of -20 per cent," Axis added.

The domestic brokerage has maintained a 'Hold' call on the stock with a downwardly revised target of Rs 1,760 as against an earlier target of Rs 2,000.

Srinivas Sadu, Executive Chairman and CEO of Gland Pharma said, "Although our overall EBITDA margin was affected by Cenexi, our base business maintained a steady 34 per cent EBITDA margin. 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."

Gland Pharma also pointed out that its new high-capacity ampoule line is on track for commercial production in January 2025. "Despite the near-term headwinds, we continue to strive to achieve our short-term outlook of a positive EBITDA for Q4 of FY25," it stated.