Eris Lifesciences gets thumbs up from analysts on pure-domestic play, foray into dermatology

Domestic market in focus

On the back of a strong growth trend undergoing in the Indian pharma market, analysts are most bullish on drugmakers that have a strong contribution from the domestic market in their revenue mix. Eris falls perfectly in that classification as the company, in its own words, works as a pure-play domestic branded formulation business.

Analysts expect companies with less exposure to the US and Europe markets to fare better in the coming quarters. Uncertainties like price erosion, intense regulatory scrutiny and high competition common in the US market often pose a threat to the margins of drug firms, and hence a lower exposure to the US generics space eases those headwinds. Likewise, the strong domestic presence for Eris safeguards it from the prevailing headwinds that US generic players have to deal with.

Inorganic growth

A strong inorganic growth in recent quarters is also aiding the sentiment for Eris. In January 2022, it entered the insulin and analogues market with an equity partnership with MJ Biopharm. In May 2022, it entered the dermatology segment by acquiring Oaknet Healthcare for Rs 650 crore. The company launched Xsulin, its brand of human insulin in February 2022.

Eris acquired nine brands from Glenmark, consisting of a derma portfolio for Rs 340 crore in January 2023. In March, it bought nine more dermatology brands from Dr Reddy’s for Rs 275 crore.

The company operates in high-margin sectors like diabetology and cardiology. In the past year, a few diabetes products/molecules have gone off-patent, which increases the scope of venturing into new drugs for Eris. “The value growth in diabetes and cardiac segments, which had fallen in the COVID period, is rebounding currently. So, it will tend to benefit Eris,” said Abdulkader Puranwala, Assistant Vice President of ICICI Securities.

In FY23, Oaknet achieved 22 percent organic growth in its base business after reporting subdued growth in the past three fiscals. The company’s management had also informed investors that it aims to scale up its insulin business over the near term and remains confident of achieving break-even in FY24.

Bullish on dermatology entry

Analysts have also noted the growing interest in the derma-cosmetology sector post-COVID, a segment that Eris is trying to invest in heavily. The rise in interest in the derma-cosmetology sector, especially post-COVID is attributed to a change in consumer lifestyle and increasing environmental pollution. Reaping the benefits of the changing trends, the company’s emerging speciality therapies – derma, CNS and women’s health have now contributed 26 percent to revenue in FY23.

“The recent string of acquisitions by Eris in the dermatology segment is complementing the initial acquisition of Oaknet. It is expected to improve the margins of Oaknet from 24 percent in FY23 to 35 percent in FY24,” said Mitesh Shah, Research Analyst at Nirmal Bang Institutional Equities.

The company had also guided a series of new launches on account of patent expirations in its core therapies, which are expected to continue well into FY25. The launches will be focused on the oral anti-diabetes, cardiology, insulin analogues & GLP1 agonists segments, as well as in dermatology and cosmetology through its Oaknet platform.

“The inorganic growth by acquisition specifically for its derma portfolio has been good for retail investors,” noted Shah. He added that the stock is currently trading way below its peers like Mankind Pharma.

Taking into account the multiple triggers carving a strong growth trajectory for Eris, it is no surprise that the company is steadily climbing the ranks to become a top pharma pick for several analysts.