Eris is a pure play in the India pharma market, with presence in the fast-growing and high-entry-barrier cardiac and diabetes drugs.
Eris is a pure play in the India pharma market, with presence in the fast-growing and high-entry-barrier cardiac and diabetes drugs. Eris has delivered strong performance with strong product selection and marketing focused on super-specialists and specialists. Eris has proven its business model is scalable, with (1) ability to create large and growing brands (top two brands are R100+ crore), (2) an already top-five position in prescription share from cardiologists and diabetologists, and (3) leveraging its high FCF to grow inorganically in new therapies. Our bottom-up analysis shows existing portfolio should grow at 15- 16% CAGR (higher than peers) despite limited new launches in diabetes and cardiac.
We present case studies on how Sun and Lupin grew to >4x the size in India in the past ten years when their sizes were comparable to Eris’ and had similar constraints. The strategy was to go for more in-licensing drugs and scale up other therapies. Sun and Lupin used their India FCF to boost export presence but Eris is using FCF for scaling up in India. Eris already branched into CNS, gynae and pain, which should boost its growth beyond 15%.Eris acquired four loss-making units in last one year to strengthen its CNS, gynae and pain portfolio. The synergies are significant and as Eris turns them around over next two quarters, market will be more convinced about Eris’ ability to grow through acquisitions. Eris’ profit CAGR of 24% (FY17-20) and RoCE (ex-cash) at 100% is the highest in the sector. EBITDA margins could further expand as comparison with Sun and USV shows Eris’ sales force productivity is half of peers.
Our TP of Rs 770 is based on 22x FY20E PE. Key risks: implementation of ‘one company, one brand’ policy, mandatory prescription by generic names and expansion of price cap list. Our bottom-up analysis suggests that existing portfolio of Eris (without acquisitions) should grow revenues at 15% CAGR with cardiac and diabetes growing faster. The drag is coming largely from the gastro and vitamin portfolio, with the two expected to grow at sub- 10% CAGR. In diabetes, Eris is gaining market share in all key molecules and should grow at 17-18% CAGR.