Gland Pharma’s shares jumped on June 21 when brokerage firm CLSA India commenced covering with a ‘buy’ recommendation on the stock, citing the company’s potential to gain from western drug companies’ increasing movement of research and development outsourcing out of China.
“Western corporations diversifying their supply chains provides an enriching environment,” CLSA India wrote in a note. “Indian enterprises have an edge in their access to a huge and low-cost science-literate workforce.”
According to the brokerage company, India’s pharma outsourcing business is expected to increase at an annual rate of 11% over the following four years, reaching a $200 billion sector by 2026. “As innovators seek to reduce R&D expenses and enhance efficiency, outsourcing is expected to accelerate,” CLSA stated.
Despite the fact that Indian firms are hampered by rules, finance, and skill to nurture broad innovation, the brokerage company anticipates companies like Gland Pharma to gain significantly from the rising trend.
Apart from having a diverse global client base, CLSA believes that Gland Pharma has high entry barriers in its respective niche, owing to the high upfront investment in setting up a lab or manufacturing facility, long gestation periods, high switching costs for the innovator, and, most importantly, the ability to protect intellectual property.
Gland Pharma is expected to expand revenues by 15-20% over the next three years, which is faster than its long-term average, according to the brokerage company. “As they consolidate their product offerings and enhance asset utilisation,” the brokerage company added, “we also predict steady margin growth and improvement in return ratios.”
At 10:15 am, shares of Gland Pharma were up 1.8 percent at Rs 2,619.65 on the National Stock Exchange.