Gland Pharma's acquisition of Cenexi, a French CDMO, is likely to bring only limited benefits to the drug maker, according to analysts, who said the buyout is margin dilutive. A few brokerages have prices targets for Gland Pharma in the widest range of Rs 1,800 -- 2,470 levels.
The stock was trading at Rs 1,835, down 2.37 per cent, taking its year-to-date decline to 53 per cent at the time of 9.19 am.
The combined entity s FY 2024 E sales and 15 percent of Ebitda will be accounted for by Cenexi, according to Kotak Institutional Equities.
It said that there were limited benefits from this deal for Gland, apart from higher scale. Kotak said that while Cenexi's flat sales growth is concerning, its margin is unlikely to scale up to Gland's level even in the long run, given the EU manufacturing base. The broker has a 'Reduce' rating on Gland with a lower face value of 1,800.
The company management wants to increase the profitability of Cenexi by boosting operational efficiency at the Fontenay site, accelerating technology transfers, moving some of the products to the Gland site from Cenexi, and adding capacity at its existing Cenexi sites.
The Nirmal Bang Institutional Equities has separate valuing the Cenexi Group and assigning 75 per share base on 10 times of CY 24 EV Ebitda due to different cost structures. Gland Pharma is known for its presence in low competition injectable segment, ability to build economies of scale with a partnership model, and strong compliance track record, as well as the fact that it is not positive about the US generics market.
We downgraded Gland a number of times from 28 times to 26 times due to uncertainty about parent financial condition and continued cost pressure at least in the near term. The buy rating on Gland Pharma has been maintained with revised target price TP of Rs 2,472, valuing it at 26 times PE, the brokerage said.
Motilal Oswal said while it raised its EPS estimate by 3 per cent for FY 24 to factor in additional business due to acquisition, the acquisition is margin dilutive and that the return ratios of Cenexi post acquisition for 2022 would be much lower than Gland's.
We reduce the PE multiple to 28 times from 31 times to reach a price target of Rs 2,470 on a 12 month forward earnings basis. It said we reiterated our Buy rating on the stock.
This acquisition would help Gland strengthen its business prospects in the market, considering the need for local presence to gain business in European markets. It would expand the Gland's overall offerings because Cenexi has capabilities in processing substances such as hormones, suspensions, and controlled substances.