Chronic profit

Eris Lifesciences has a tried and tested formula to stay profitable. With chronic and sub-chronic therapies making up 86% of its business, the company derives much of its revenue from the domestic formulations market. In Q1FY21, unhampered by the pandemic, the company recorded sales of Rs.2.88 billion (6.9% YoY growth) and posted profit of Rs.890 million (5.9% YoY growth). The company also ended FY20 on a high note, recording profit of Rs.2.96 billion.

This strong financial performance has reflected in the stock price. Recovering from the March low of Rs.341, the stock hit a 52-week high of ₹593 on June 2. Currently, it trades near the Rs.520 mark. Cashing in on this uptrend, promoter Himanshu Shah offloaded shares worth ₹968 million in September, reducing his holding from 3.23% to 1.9%. Co-founder Shah had tendered his resignation as a director in July 2019 and was relieved on May 31, 2020.

Analysts are optimistic about the company’s growth prospects. For Prabhudas Lilladher, the stock is among their top picks in the mid-cap space due to the company’s pure domestic play with insignificant regulatory and currency risk, strong balance sheet and minimal dependence on Chinese API. “We maintain BUY recommendation and retain target price of Rs.576 based on PE 21x of FY22E,” mentions the report.

Anand Rathi Group expects organic growth to pick up for the company. Driven by a pickup in its Zomelis brand, the analysts expect 8.9% CAGR over FY20-23 in sales. However, they are cautious about the delay in new product launches due to COVID headwind. “Though near-term opportunities may lead to scaling up existing brands, for the momentum to continue it may need to speed up launches. We retain our Hold rating, with a higher target of Rs.565,” mentions their report.

In its annual report, the company talks of taking a focused approach to pursue high-growth opportunities like neurology, dermatology women’s health and osteoarthritis. It will also leverage R&D to target new product areas in cardiovascular and diabetes care segments nearing patent expiry. Buying into the growth story, the world’s oldest sovereign wealth fund Kuwait Investment Authority has bought 1,454,175 shares of the pharma company at Rs.540 per share last month. Mutual funds, too, have increased their stake from 10.51% in March 2020 to 10.66% in June 2020. FIIs, though, reduced their holding from 10.19% to 10.11% during the same quarter. Promoter holding stands at 54%.