Stock Fundamentals

Why the stock of Eris Lifesciences is a good buy

Maulik Madhu | Updated on February 20, 2021

With its focus on lifestyle diseases, the firm is addressing a key segment in healthcare

Pharmaceutical companies focusing on products for treatment of chronic diseases such as diabetes, cardiovascular ailments, neurology and respiratory issues, among others, are catering to a large market demand driven by the growing prevalence of lifestyle-related diseases and improved awareness about them.

Eris Lifesciences, an India-focused branded generics pharma company, is a fast-growing player in the chronic therapies segment, particularly related to diabetes and cardiovascular diseases. The two therapeutic areas, which are among the largest chronic categories in the Indian pharma market, accounted for 56 per cent of the company’s revenue in 2019-20. Apart from that, with the pandemic bringing home the importance of developing better immunity, the company’s sub-chronic segment (vitamins, minerals and nutraceuticals) too is expected to do better.

As a pure domestic-only pharma company, Eris Lifesciences is also immune to regulatory action by the USFDA and other global regulatory agencies. It sees ample growth opportunities in the Indian pharma market and will continue to focus on it.

The stock of Eris Lifesciences has gained close to 60 per cent since the March 2020 lows. This is likely reflective of the company’s strong financial performance during the nine-month period ended December 2020.

The stock is reasonably valued, and at around ₹564, trades at 24.3 times its trailing twelve-month (TTM) earnings for the year ended December 2020. This is below its 3-year average TTM price-to-earnings multiple of 27.4 times. Many other Indian generic companies that have both domestic and export sales are trading at a TTM P/E multiple of 22 to 37 times. Investors with a long-term horizon can consider investing in the stock of Eris Lifesciences, a company well-placed for growth in the chronic diseases segment.

Strong presence

Eris Lifesciences is engaged in manufacturing, marketing and distribution of branded generic formulations that provide treatment for chronic (diabetes, cardiovascular and others), sub-chronic and acute (anti-infectives, respiratory and gastroenterology) therapeutic areas, in the Indian market. The three segments contributed 63 per cent, 23 per cent and 14 per cent of the company’s revenue in 2019-20.

The company’s wide distribution network, and a strong force of medical representatives for engagement with specialists and super specialists in the competitive branded generics market, have helped it establish its presence. Eris Lifesciences has many leading brands across its key therapeutic areas. Its three brands, Glimisave, Tendia and Cyblex are among the top six in diabetology. In cardiology, Eritel, Olmin and LNBloc are among the top five brands in the Indian market. In the vitamins, minerals and nutrients segment, Ginkocer, Renerve and Tayo are among the top four. Ginkocer, which is ranked number one, had a market share of 29 per cent in 2019-20.

Growing fast

All this has helped Eris Lifesciences grow sales, both in its chronic and sub-chronic segments, at a faster rate than the industry.

During the latest December 2020 quarter, sales in the two segments grew at a rate of 13.6 per cent and 39 per cent, respectively, versus 12.2 per cent and 16 per cent, respectively, for the industry.

According to the company, new product launches, expanding doctor reach, especially with consulting physicians to drive growth in prescriptions and improvement in the productivity of its marketing representatives, will be the key growth drivers going forward.

Eris Lifesciences launched three products, Gluxit (anti-diabetic), Rivalto and Zayo (both cardiology-related) in the December 2020 quarter, with three more launches expected.

Many high growth molecules in diabetes and cardiac therapies are set to go off-patent in the coming years and this should present a good growth opportunity.

Strong financials

During the nine-month period ended December 2020, Eris Lifesciences grew revenue from operations at 13 per cent year-on-year to ₹ 934 crore. During the same period, the company’s EBITDA (operating profit) rose 15.4 per cent to ₹336 crore and net profit grew 19.4 per cent to ₹287 crore. Between FY16 and FY20, the company’s revenue from operations rose 15.8 per cent and operating and net profit grew 21 per cent and 28 per cent (all CAGR), respectively. A portfolio of leading brands backed by strong marketing initiatives have helped the company expand its revenue over the years. Italso has no debt and has been generating positive cash flow from operations.

A significant spend on manpower expansion and promotion costs associated with the launch of Zomelis (trademark acquired from Novartis AG), though bumped up costs in December 2019 quarter, has boosted performance. For nine-month period ended December 2020, it reported operating and profit margins of 32.6 per cent and 30.5 per cent, respectively.

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Published on February 20, 2021
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