This beaten-down stock that has fallen 53% YTD gets a buy call with an upside of up to 42%

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This beaten-down stock that has fallen 53% YTD gets a buy call with an upside of up to 42%
Credit: © Reuters.

Gland Pharma (NS: GLAD ) has entered into a put option agreement to acquire a 100% of Cenexi Group for an equity value not exceeding Euro 120 million (Enterprise Value of Euro 230 million). Its shares were trading 4.17% lower at ₹ 1799.70 apiece at 12:19 PM on Wednesday.

The Cenexi Group is primarily a Contract Development & Manufacturing Organisation (CDMO) of pharmaceutical products. It has expertise in sterile liquid and lyophilized fill-finished drugs, including capabilities in oncology and complex products.

Gland Pharma will acquire Cenexi Group through its wholly-owned subsidiary Gland Pharma International PTE. Ltd, Singapore. Its ability to support future investments in expanding its manufacturing footprint will help build Cenexi as a major CDMO player in the European market.

On the other hand, it provides Gland Pharma with access to leading know-how and development capabilities in sterile forms including ophthalmic gel, needleless injectors and hormones. The companies can leverage their long-standing customer relationships to generate synergistic benefits along with helping Gland enter the branded CDMO space.

Cenexi had annual sales of 184.1 million euros, with an EBITDA (earnings before interest, tax, depreciation, and amortisation) of 23.1 million euros in CY21. Its revenues stood at 100.1 million euros with an EBITDA of 19.1 million euros in H1CY22.

Targets

Motilal Oswal (NS: MOFS ) Financial Services (MOFS) has a ‘buy’ call on the shares of Gland Pharma with a target price of ₹ 2470 apiece. This translates to an upside of 37.25 as compared to its share price of ₹ 1799.70.

The brokerage said that given the generic product portfolio of Gland Pharma, the valuation is fair and is in line with peers in the space. It is important to note that Gland Pharma’s share price has fallen by 53.27% on a year-to-date basis.

MOFS said that the sharp correction in the stock over the past six months has made valuation attractive at 21x/18x FY24/FY25 earnings, respectively. It has raised its FY24 EPS estimate by 3 per cent to factor in additional business from Cenexi.

Morgan Stanley (NYSE: MS ) has maintained an overweight rating on the stock with a target price of ₹ 2558.00. This implies an upside of 42.13% as compared to its share price ₹ 1799.70.

In another development on Tuesday, Bloomberg reported that Fosun Pharmaceutical is considering the sale of Gland Pharma for $ 3.6 billion after receiving interest from potential buyers. Fosun acquired a 74% stake in Gland for about $1.1 billion in 2017 from an investor group including KKR & Co.

“Fosun Pharma, a listed arm of Chinese conglomerate Fosun International Ltd., has been working with an adviser as it informally gauges interest in its controlling stake in Gland. Companies in the industry and buyout firms are in the early stages of studying the business asking not to be identified because the matter is private,” as per Bloomberg’s report.

Morgan Stanley said that the deal appears complementary to Gland in terms of EU market access, branded pharma customer base and some technologies. “We see the scope of meaningful value unlocking, subject to synergy execution,” it said in a note.

Gland Pharma is a large-cap company with a market capitalization of ₹ 30,928 crores. It has a return on equity of 18.55% and is almost debt free with a debt-to-equity ratio of 0.00. Further, its shares are trading at a price-to-equity ratio (P/E) of 30.07, which is almost at par with the industry P/E of 29.22.

Written by Simran Bafna

The post This beaten-down stock that has fallen 53% YTD gets a buy call with an upside of up to 42% appeared first on Trade Brains.

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