Axis Capital Initiates New Buy On Eris Lifesciences
Eris has the second highest sales growth, just behind industry leader Ajanta Pharma.
Brokerage firm Axis Capital initiated coverage on Eris Lifesciences Ltd. with a ‘Buy’ rating, citing its focus on high growth, high margin chronic segment.
The company managed to clock a compounded annual growth rate (CAGR) of 21.7 percent, which makes it the second-fastest growth pharma company behind Ajanta Pharma, the broking firm said.
Axis Capital has pegged a target price of Rs 730 on the stock, implying a potential upside of 24 percent.
The broking firm expects the drugmaker to report a revenue growth rate of 20 percent CAGR over financial years 2017 to 2019. It said this would be led by high growth in chronic segments and acquisitions.
Chronic segments include cardiology and anti-diabetes, which represent 61 percent of the sales for Eris.
The broking firm said the drugmaker is likely to get some margin boost as production at its Assam facility, which also eligible for tax incentives, ramps up. This would also lead to earnings per share growth of 31 percent CAGR, the report said.
"Eris’s ongoing above-industry margin is expected to grow at 25 percent over financial years 2017 up to 2019."
Axis Capital expects Eris to generate Rs 590 crore worth free cash flow over financial years 2017 till 2019. This strong net cash flow may lead to possible mergers and acquisitions. While the scale of operations is increasing for the pharma company, the favourable working capital will sustain for the future performance of the company, the report said.
Pricing policies that surround the pharma industry and strict marketing norms can be risky to the company’s performance in future.