Citi Initiates New ‘Buy’ On Eris Lifesciences On Strong Sales Outlook
Citi sees margin expansion of 500 basis points in Eris Lifesciences; Initiates coverage.
Citi Research initiated coverage on Eris Lifesciences Ltd. with a 'Buy' rating, on the back of a strong balance sheet, healthy return ratios and earnings growth as opposed to its peers.
The drugmaker’s presence in high-growth lifestyle segments and focused product selection have led it to create multiple leading brands that augur well for its long-term growth.
Eris Lifesciences has emerged as the fastest growing company in chronic categories in a short span of time, with demonstrated compounded annual growth rate of 29 percent over financial year 2012-13 to financial year 2016-17, the brokerage said.
Key Drivers To Sustained Growth:
- Focus on chronic areas
- High exposure to urban areas
- Greater thrust on specialists and super specialists versus general practitioners
- Bigger share of growth molecules in its portfolio
Eris Lifesciences has an asset-light business model with healthy returns on capital, said Citi. This, along with low capital intensity, in terms of both working capital and fixed assets, drive healthy cash flow generation, said the brokerage.
Going ahead, Citi expects future growth to be driven by a strong balance sheet and healthy cash flows. Revenue is expected to grow at 23 percent CAGR over FY17-FY19, while the margins are anticipated to expand by 500 basis points.
Citi assigned the stock a price target of Rs 700, while the bull case target price stood at Rs 800, potential upside of 19 percent.
Key Risks To Valuations:
- Changes in government regulations
- Uncertainty associated with pharmaceuticals pricing
- Any reduction or termination of tax incentives