Since its inception, the company has been focusing on chronic and specialty acute therapeutic segments. This strategy has played well for the company, as it has gained market share in most of the therapeutic segments of its focus. This has also helped the company to become 32nd largest company by revenue in domestic pharma industry within a decade.
The business of Eris is 100% domestic and the company has no intention to start exports. This, we believe is a differentiated strategy, as it insulates the company form the risk of foreign regulator as well as higher expenses in terms of R&D. This bodes well in the times of heightened regulatory issues in the sector.
Eris has exhibited a growth CAGR of 16.5% in the top-line over the last five years. Company also has a good EBITDA margin profile, 37% in FY2017, much better than its Indian and MNC peers. Moreover, the margins have seen consistent expansion owing to which, its bottom-line CAGR works out to be 42.6% over the last five years (4.1x growth). Company has strong RoE and RoIC ratios as compared to peers, and we believe that with its specialty focus and marketing & selling capability, it will be able to maintain healthy financial profile going ahead.
On FY2017 EPS of Rs17.6, the issue is priced at P/E of 34.25x, which is at par with its MNC peers but higher than domestic peer, Alkem Labs. Considering that Eris’ faster growth, superior returns, debt free status, and specialty play, we believe that this is a fair valuation. We believe that Eris is likely to continue growing faster than its competitors owing to its marketing capability, higher operating leverage and growing market share of its mother brands. While most pharma companies are currently facing issues on several fronts, this business model looks attractive with no USFDA concerns and pricing pressure. Considering the company’s superior growth, better margin profile and high return ratios, we rate this IPO as SUBSCRIBE.
