PL Stock Report: Eris Lifesciences (ERIS IN) - Q2FY24 Result Update – In-line EBITDA; Strengthening its derma portfolio - BUY

Eris Lifesciences (ERIS IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs912 | TP: Rs1,050

Q2FY24 Result Update – In-line EBITDA; Strengthening its derma portfolio

Quick Pointers:

♦ Signed agreement with Biocon Biologics to strengthen presence in Nephrology & Derma space.

♦ Reiterated guidance of Rs20-21bn revenue with EBITDA of Rs7bn in FY24.

Eris Lifesciences (ERIS) Q2FY24 reported healthy EBITDA of Rs1.8bn (up 21% YoY) with sharp improvement in OPM at 35.8% (up 300bps YoY). We expect margins to sustain as revenue scales up from recent acquisitions which is currently operating at sub optimal profitability. The company has multiple growth levers such as broad based offerings in derma segment, opportunities in cardio metabolic market with patent expirations and benefits of operating leverage, as revenue scales up from these acquisitions. We maintain our ‘BUY’ rating with revised TP of Rs1,050 (Rs910 earlier), valuing 16x EV/EBITDA on Sept 2025E as we roll forward.

♦ In line revenues, up 10% YoY: ERIS’s performance was driven by derma acquisitions. Overall branded formulation business grew by 13% aided by acquired derma portfolio. Mgmt cited 7-8% organic growth. During 1HFY24 revenues from insulin business stood at Rs 190mn.

♦ Another quarter of strong EBITDA margins: On operational front EBITDA came in at Rs 1.8bn (up 20% YoY and 7% QoQ). EBITDA margins improved YoY and stood at 35.8% (up 390bps YoY). The YoY improvement was largely due to higher GMs and scale up in Oaknet’s profitability. Gross margin increased YoY, by 430bps to 81.1% during the quarter on account of better product mix. PAT came in at Rs1.2bn (up 3% YoY); against our estimate of Rs 1.1bn. Tax came in lower at 3%. Depreciation & finance charges came in higher as expected reflecting recent acquisitions.

♦ Key concall takeaways: New acquisition: Eris has signed a definitive agreement to acquire the dermatology & nephrology businesses of Biocon Biologics for Rs3.7bn. The same will be funded through a mix of debt Rs2.8bn and remaining through internal accruals. Current revenue run rate of overall portfolio stood at Rs 1bn with ~22% OPM. The deal is likely to position Eris in 2nd position in psoriasis with 11% market share. Gudied for +30% OPM from FY25 and will be EPS accretive from FY26. Business mix: Ramp up of its injectable anti-diabetes franchise remains on track. Margin improvement through Derma in-sourcing is likely to start from Q4 FY24. Received DCGI approval for 2 R&D products Gliclazide-Dapagliflozin and Gliclazide-Sitagliptin, (first in market combination) with launch expected in Q3FY24. Launched four new cosmetic derma products in Q2, including Hydroheal Nova, Efatop Hydra and Crisanew. Re-launched 2 products, Linares and FCM injection during the quarter. Commercial production of its Derma block at Ahmedabad facility to commence in Q4FY24. Reiterated annual guidance of Rs20-21bn revenue with EBITDA of Rs7-7.1bn in FY24. Net debt stood at Rs6.2bn vs Rs 6.7bn as of Q1FY23 end.

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