Shares of Gland Pharma rose on June 21 after brokerage firm CLSA India initiated a coverage on the stock with a ‘buy’ rating on expectation that the company will benefit from increasing shift of research and development outsourcing by western drug giants out of China.
“Western firms seeking to diversify their supply chains creates an enriching environment, and Indian firms have an advantage in their access to a large and low-cost science-literate workforce,” CLSA India said in a note.
The brokerage firm said that the pharma outsourcing market in India expects to grow at 11 percent on an annual basis over the next four years to a $200-billion industry by 2026. “As innovators strive to lower their R&D costs and improve efficiency, the pace of outsourcing is set to increase,” CLSA said.
The brokerage firm expects companies like Gland Pharma to benefit increasingly from the emerging trend even though it argued that Indian companies are constrained by policies, funding and talent to foster widespread innovation.
Besides having a diversified global client base, CLSA believes that companies like Gland Pharma also have high entry barriers in their respective niche, given steep upfront investment in setting up a lab or manufacturing facility, long gestation periods, high switching costs for the innovator and, more importantly, ability to protect the intellectual property.
The brokerage firm expects Gland Pharma to deliver 15-20 percent growth in revenues over the next three years, which is higher than its long-term average. “We also forecast gradual margin expansion and improvement in return ratios as they integrate their product offerings and improve utilisation of their assets,” the brokerage house said.At 10:15 am, shares of Gland Pharma were up 1.8 percent at Rs 2,619.65 on the National Stock Exchange.
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