Gland Pharma: What should you do?

Gland pharma is primarily a generic injectables manufacturing and CDMO (Contract Development and Manufacturing Outsourcing) company. Its growth will be driven by base operations and recovery in acquired operations. The company has established a strong GLP-1 capacity, which should aid growth in the next three-five years. The stock is trading at 31 times one-year forward earnings compared to the last five-year average of 28 times. The stock has had a volatile past. After a Covid demand driven boom and reaching a peak of ₹4,300 per share in Aug-21, the stock declined to a low of ₹930 per share in June-23 as demand tapered off and significant sales decline in two main products. The company has stabilized operations from there and is on recovery path currently trading at ₹2,475 per share.

We recommend investors accumulate the stock at opportune corrections to allow for a margin of safety in valuations. The strong outlook for CDMO outsourcing and the established GLP-1 capacity should support the company’s earnings growth. But premium valuations leave little room for execution missteps.

The main growth driver will be new product introduction, which offsets price erosion and adds to growth in the US segment. In FY26, the company launched 31 products. With a base of $340 million in FY26 from the US, a similar launch schedule in FY27 should sustain growth. Part of the launches in this fiscal will be generic launches under a contract with the US GPOs (group purchase organisations), which collectively purchase generics for the US distribution. Of the 10-plus contracted generics, three have been launched in late FY26; and along with the remaining launches, these should aid growth in FY27.

Among the FY27 launches are the Dalbavancin (antibiotic) and multivitamin portfolios (launched in early FY27). The high-value products are expected to add 6-8 per cent to the base business.

In the next one-two years, the company will also add three CDMO projects to its base. Three dedicated production lines are under development and expected to be commercialised from FY28, with one of them expected to add 5-6 per cent to the current US sales.

Gland Pharma has developed capacity to be part of the upcoming GLP-1 market. GLP-1 is a leading class of medicine for diabetes that will lose patent protection from FY26 (India, Canada) to FY30 (the US). The company has increased its GLP-1 fill-finish capacity from 40 million per year to 140 million per year. Fill finish is a crucial final step after API manufacturing, where the sterile dose is transferred to vials, ampules or cartridges through a highly-sterile and complex system. The company expects to grow into the capacity gradually from FY27, as the GLP-1 market undergoes stages of generic manufacturer approvals, market formation and expansion across markets. In the initial stage, it has signed eight contracts (largely generic manufacturers) and six-seven more are expected. The company will use the facility for other insulin, peptide from other manufacturers as well till capacity is fully achieved.

Gland Pharma acquired France-based CDMO manufacturer – Cenexi in April 2023. The acquisition was at an enterprise value of €230 million, with the firm reporting revenues/EBITDA of €184/23 million in FY21.

Diversification, European foray and technology expansion were the primary reasons for the acquisition. Gland Pharma derived 66 per cent of revenues from the US in FY23 compared with 53 per cent in FY26 and European revenues have increased from 5 per cent to 21 per cent in the period. The deal also gave Gland Pharma more capacity to make ampoules and pre-filled syringes, and added expertise in areas such as ophthalmic, hormonal and cytotoxic products. According to the management, the acquisition is also driving cross-selling opportunities in FY26 as well.

But EBITDA margins have declined post-acquisition despite revenue growth, as shown. Revenue growth will sustain as the company has added two products...