Gland Pharma ebbs as Street worried over profit and parent Fosun Pharma troubles

Drug firm Gland Pharma Ltd has underperformed this week as well amid concerns in relation to parent Fosun Pharma.

Hyderabad-based company has corrected over 40 percent off its market cap from its 52-week high after reports emerge that regulators in China have asked bank firms to check the financial exposure to Fosun Pharma.

The speculations with respect to Fosun Pharma began after the firm was downgraded by rating firm Moody's in August by one notch to B1 amid concerns with regard to liquidity, refinancing pressure, and exposure to the Chinese property market.

Fosun International is a diversified conglomerate holding stakes in various businesses, including insurance, hospitals, diagnostics, and fashion entertainment, and it holds around 57.87 percent stake in Gland.

Recently Fosun Pharma had brought a majority stake in Gland — 74 percent in a deal valued over Rs 6,000 crore odd, almost Rs 7,000 crore in 2017. It was eventually listed in 2020.

However, Gland has concerns of its own, which includes weak numbers. In its first quarter numbers, revenue was down 26 percent, margins came in at around 31 percent, and profit was down 25 percent. There are supply challenges that the street fears will continue for the company.

The company, however, it's confident in terms of improving growth. There have been issues such as syringe issue supplies, which now seem to have probably eased and we have probably seen the worst of it.

In terms of valuations for Gland at FY23, the PE is 22 times versus a 1-year high of 60 times and FY24 is 27 times versus a 1-year high of close to 50 times.

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