Why Gland Pharma Share Price is Falling

Editor's note: After crashing 59% in 2022, Gland Pharma share price has started 2023 on a lacklustre note.

So far in the first two weeks of 2023, the stock is already down over 11%.

This, at a time when outlook for pharma stocks is looking good owing to the sudden Covid outbreak in China.

Also, foreign investors (FIIs) have once again started to sell in India but pharma and FMCG sector remain their top bets.

So, why is the share price of Gland Pharma taken to the cleaners despite strong growth prospects?

Back in October 2022, we wrote about the reasons dragging the pharma stock lower and what you could expect from it in 2023.

There have been some new developments after that which need a mention.

Continue reading to find out...

Why Gland Pharma Share Price is Going Down

The share price of Gland Pharma crashed over 14% on Thursday this week after the company's Q2 results missed estimates on various fronts.

The company, which was already suffering from supply chain disruptions and worries over USFDA inspections, suffered a major blow after reporting back to back weak quarterly results.

Let's take a look at the company's results.

Lower-than-expected quarterly results

For the quarter ended September 2022, Gland Pharma reported a 20% year-on-year (YoY) decline in its net profit at Rs 2.4 bn. This on the back of lower sales and higher expenses.

The company's revenue for the said quarter fell 3% to Rs 10.4 bn compared to a year-ago. This was due to lower business from India and Rest of World, while core markets (US, Europe, Canada, and Australia) recorded marginal growth.

Gross profit and operating profit margins slipped to their all-time lows at 50% and 28.4%, respectively. With this decline, margins at the operating level have now declined for the past six quarters.

After declaring results, the company's management withdrew its FY23 guidance mainly due to cost inflation.

Here's an excerpt of what the company's MD and CEO Srinivas Sadu said:

• We continue to make investments in R&D and were able to complete 6 ANDA filings during this quarter.
  
  Although we have seen increased competition in our new products, we remain confident of our launch pipeline that will ensure sustainable growth.

A disappointing Q2 from the company has raised growth concerns which has had a major effect on Gland Pharma's stock.

In a first, the company recorded its sharpest intraday fall yesterday after listing around two years ago.

Other factors dragging the stock lower

Apart from weak quarterly results, the company is facing supply chain disruptions for the past few quarters. The delay in raw material supplies significantly impacted the company's ability to take up orders.

In June 2022 quarter, the company had to shut down two of its manufacturing lines owing to these disruptions.

We covered an editorial back in September 2022 explaining why Gland Pharma share price is falling.

Concerns over parent company Fosun

Last year in August, reports suggested that regulators in China have asked banking companies to check the financial exposure to Fosun.

Fosun is Gland Pharma's parent company and holds substantial stake in the firm. It has high debt on its books and is struggling due to the impact of the slowdown of the property sector in China.

Fosun had acquired a 74% stake in Gland Pharma in 2017 from an investor group. Currently, Fosun holds 57.9% stake in Gland Pharma.

In late November 2022, report stated to circulate that Fosun is considering the sale of the Indian drugmaker after receiving interest from potential buyers.

Resultantly, Gland Pharma saw a sharp rise, above 10%, when the speculative news was out.

However, all of this is speculative in nature but if the deal dos go through, it will be India's biggest pharma deal.

Recent acquisition by Gland Pharma. But will it be fruitful going forward?

Last year in November, Gland Pharma's Singapore subsidiary entered into an agreement to acquire 100% of France-based contract development & manufacturing organisation (CDMO).

Here's an excerpt from the exchange filing:

• Gland Pharma, a generic injectable focused CDMO company through its wholly owned subsidiary Gland Pharma International, entered into a put option agreement to acquire 100% of Cenexi Group for an equity value not exceeding euro 120 million.

In the conference call, the company said this acquisition will give Gland Pharma a foothold in the European CDMO market.

Investors finally sighed a relief when the deal was announced as this acquisition provides access to global clients like Bayer, AstraZeneca, Sanofi, Mylan, Organon as well as biotech players like Stragen, Advanz Pharma among others. Shares of the company saw a 5% rally on the same day.

Whether this acquisition was expensive or was done at reasonable valuations, only time will tell. It sure gave a boost to Gland for the near term.

However, investors should be cautious as recent developments don't point to a speedy recovery for Gland Pharma.

The company's management has said that next six quarters would remain "challenging" for the company.

• While supply issues may settle in the next few months, competitive intensity, particularly in the US may aggravate.

How Gland Pharma has performed in 2022

Yesterday, Gland Pharma slipped 15% to register its biggest intra-day loss in more than two years.

Continuing the downtrend, the stock is down another 2% today and has touched a new low of Rs 1,866.

Gland Pharma has a 52-week high quote of Rs 4,060 touched on 6 January 2022. It is currently trading down over 50% from those yearly high levels.

In 2022 so far, the stock has plunged 52%.

Take a look at the table below which shows the comparative analysis of Gland Pharma.

Comparative Analysis

Company	Gland Pharma	Ajanta Pharma	Alembic Pharma	Granules India	Medplus Health
ROE (%)	18.6	22.8	10.0	17.5	9.1
ROCE (%)	24.9	29.4	11.2	17.4	16.6
Latest EPS (Rs)	62.5	55.7	16.1	20.0	8.1
TTM PE (x)	30.4	23.3	34.2	18.4	75.4
TTM Price to book (x)	4.1	4.8	2.1	3.4	5.1
Dividend yield (%)	0.0	0.7	1.8	0.4	0.0
Industry PE (x)	35.2
Industry PB (x)	3.5

Data Source: Ace Equity, Equitymaster

About Gland Pharma

Incorporated in 1978 as private company in Hyderabad, Gland Pharma is primarily engaged in manufacturing injectable formulations.

Gland Pharma has a global presence in around 60 countries and operates on a business-to-business model in countries like India, the USA, Canada, Australia, and some European countries.

The company was listed on the bourses in 2020 and has robust financial outlook. The company is debt free and its five-year average return on equity stands at 17.4%.

Its revenue has grown at a CAGR of 20.9% in the last five years while net profit has grown at a CAGR of 26%. Gland Pharma is among the top midcap growth stocks.

To know more about the company, check out Gland Pharma's financial factsheet and Gland Pharma news and analysis.

Since midcap stocks interest you, check out our guide on the best midcap stocks.

You can also compare Gland Pharma with its peers:

Gland Pharma vs Aarti Drugs

Gland Pharma vs Zydus Lifesciences

Gland Pharma vs Alembic Pharma

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...