Informist, Friday, May 19, 2023
By Apoorva Choubey and Narayana Krishna
MUMBAI/HYDERABAD – Gland Pharma Ltd's shares plunged a whopping 20% today as the company missed earnings expectations of the equity market, following which several analysts reduced their estimates for future earnings.
After the company's dismal earnings for Jan-Mar and bleak commentary by the management on Thursday, the stock was the worst performer on the Nifty 200 index today, ending at its lower circuit of 1,065.60 rupees on the National Stock Exchange.
The drugmaker's consolidated net profit for Jan-Mar tanked a massive 72% to 787 mln rupees, missing analysts' estimate of 2.35 bln rupees. Some analysts even termed the quarter's core operating margin of 21% as the company's worst ever performance in terms of profitability.
Gland Pharma declined to comment on Informist's queries on today's share price fall.
The drugmaker's business has been wrecked by a steep erosion in key drug prices in the US, challenges in its production line, client-related issues and lower-than-expected benefit from newly added vaccine-filling infrastructure.
These issues, coupled with a one-time loss due to a client going bankrupt in the US, led to Gland Pharma under-delivering on earnings once again, for at least the third quarter in a row.
The drugmaker, which is promoted by China's Shanghai Fosun Pharmaceutical Group, is actually one of the worst performing pharmaceutical companies this past year, in terms of share prices.
Its shares have crashed 66% in the last 52 weeks, compared with a 4?ll in the Nifty Pharma index.
The drop in its share price was largely on account of foreign institutional investors paring their holding in the company. Foreign institutions now own a little over 4% stake in the company, down from around 11% a year ago.
In fact, the value of the company's shares is only a fourth of what it was in August 2021, when the price hit a lifetime high, and ownership of foreign institutions was near the maximum.
During this time, the company’s shares have seen multiple ratings downgrades by analysts, who had once termed the stock as the best bet for playing the global injectables drug story.
The equity market had also assigned a premium to the company as it was seen benefitting from the ancillary vaccine opportunities following the outbreak of COVID-19.
However, the company could not impress with its sales and profit growth over the last two years or so, as vaccine opportunities did not fructify as well as expected, while new launches were delayed across the industry and large pharmaceutical clients’ volumes suffered due to inflation.
Supply issues also haunted the company, with acute shortage of materials resulting in the loss of 60-70% business in some of the injectable products, which is a high-margin and key category for the drugmaker.
Gland Pharma recently shut down its specialty antibiotics-making facility at Pashamylaram in Telangana to upgrade its manufacturing infrastructure. The company lost 300-400 mln rupees of sales due to this shutdown, the management informed investors during its Jan-Mar earnings call.
The company had also closed its insulin-manufacturing plant at Dundigal, Telangana, during Jan-Mar for an upgradation of the manufacturing line.
While the plant shutdown may not impact the company here on, many market participants fear that such challenges highlighted by the company, which weighed on Jan-Mar earnings, will persist for a few more quarters.
These challenges also include a decline in business-to-consumer sales in India, volatility in rest of the world markets, heightened competition and client-related issues such as inventory reduction.
The bigger problem is that the company's management failed to provide any clear visibility of when a recovery could be expected, analysts at Elara Securities India wrote in a report today. The granular details seem unconvincing, they said, retaining a "reduce" rating on the company's shares.
Given the business-to-business nature of Gland Pharma's operations, analysts at Elara Securities find it "difficult to ascertain the depth of the concerns and await clear signs on stability in the business."
Brokerage Nirmal Bang Institutional Equities echoed the view that there is a lack of visibility when it comes to Gland Pharma's business. The brokerage house has cut its rating on the company's shares by two notches to "sell" from "accumulate".
"We remain cautious on Gland due to elevated competition in key products and client-related issues," it said, and reduced earnings per share estimates by 17-18% for the next three financial years.
The company could be staring at further downgrades in estimates by analysts if competition in the US intensifies further. The company could gain investors' favour more by focussing on stability in operations, providing visibility for a recovery and delivering on what it guides, believe participants.
Gland Pharma's shares are at their lifetime low and technically, in a capitulation stage, noted T.B. Chary, partner and head of equity research at Wealocity Advisors. End
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