At 31X FY2023E EPS, share price adequately captures medium-term growth. REDUCE.
Gland has announced an agreement with Russia’s RDIF to produce up to 252 mn doses of Sputnik V vaccine with delivery commencing from 4QCY21. The contract will mark Gland’s foray into vaccine manufacturing though commercial implications remain contingent on evolving dynamics of vaccine administration across various countries. At 31X FY2023E EPS, share price adequately captures medium-term growth. REDUCE.
Gland announced an agreement with Russia’s RDIF to supply up to 252 mn doses of Sputnik V vaccine and will manufacture drug substance as well as formulation. As per the agreement, after undertaking a tech transfer of drug substance, Gland will start production of vaccine from 3QCY21 with delivery commencing in 4QCY21. Sputnik V uses two different adenoviruses (rAd26 and rAd5) and has shown an efficacy of 91.6% in Phase 3 trials. The vaccine has been approved in over 30 countries and we expect Gland to supply the vaccine to export markets (primarily Latam, Africa and Middle East) with Sputnik V likely to play a limited role in the US, EU-5, India and China vaccinations. Scale-up will be gradual and contingent on regulatory approvals and we believe manufacturing could ramp-up to 8-10 mn doses per month by Nov/Dec 2021. Notably, RDIF has also signed agreements with 10-15 manufacturers across various countries including Hetero (100 mn doses) and other manufacturers in Brazil/South Korea and has an ambitious production target of 1.4 bn doses in 2021.
Vaccine administration is progressing at a steady pace across various countries and has reached a daily run-rate of 11 mn doses/day with ~380 mn doses administered globally. Pfizer, Moderna, AZ and Sinopharm are the major vaccines in use and we expect vaccination to accelerate over the coming months with Novavax and J&J (single dose) vaccines likely to join the market. We expect 16-20% global vaccination coverage by September 2021 at the current rate, though this is likely to increase meaningfully with Novavax and J&J (both having multiple manufacturers), each scaling up to 10 mn doses per month by June-July. Given limited information on pricing, end market, timelines of scale-up and importantly, market share of Sputnik V across countries, it is difficult to estimate Gland’s economic dynamics from the agreement at this stage with opportunity size ranging from Rs 2-15 bn assuming a $3-6/dose pricing. Gland is also exploring partnerships with other vaccine developers which could provide one-time earnings boost in FY2022-23E, though over the medium term, we believe the vaccine market will see surplus capacities given multiple players (including Indian companies) expanding capacities.