Gland Pharma near 52-week low after management expects challenging next six quarters

Gland Pharma's shares dropped as much as 3 percent on Friday after the management told analysts that the next six quarters would remain "challenging" for the company. While supply issues may settle in the next few months, competitive intensity, particularly in the US may aggravate.

As a result, Kotak Institutional Equities has revised Gland Pharma's growth and margin estimates lower to a new normal. The brokerage has also cut its price target on the stock to Rs 1,660 from Rs 1,800 earlier.

Kotak advised its investors to stay "cautious" on the stock.

The brokerage expects increasing competitive intensity from Indian and Chinese players to negatively impact Gland’s US sales, including profit share, over the next 1.5 years.

Moreover, Kotak also seemed cautious of the recent news that Shanghai Fosun Pharmaceutical Group has approached several private equity firms for its stake sale in Gland Pharma. Currently, Fosun International has a controlling stake of 57.86 percent in Gland Pharma, as per BSE filings.

“We note Gland’s ownership has changed hands a few times since inception. However, without Fosun’s support, in our view, Gland’s China foray could stutter,” Kotak said in the report.

However, on the flip side, a non-Chinese promoter can enhance the company's ability to acquire assets in India and the US.

The brokerage has lowered Gland Pharma's Earnings Per Share (EPS) estimates by 6-9 percent to account for lower US sales. It has cut down its US sales compounded annual growth rate to 1.4 percent from 6.7 percent earlier.

Shares of Gland Pharma are trading 2.9 percent lower at Rs 1,699.90.