Neuland Laboratories - Improved Products Mix To Drive Growth: DRChoksey

DRChoksey Research Report

Neuland Laboratories Ltd. has witnessed marked improvement in Ebitda level profitability over FY19-FY24. This was majorly driven by steady shift from low margin to high margin specialty and custom manufacturing services as it transitioned to a larger pipeline of CMS services for innovator companies and expanded its specialty offerings including peptides. Share of CMS services has increased to 49% of revenue in FY24 versus 37% in FY23 and 11% in FY14.

The company’s stock is trading at 28.7 times/22.8 times its FY25E /FY26E consensus EPS. This, when compared with Divis Labs (55.7 times/45.4 times its FY25E/FY26E EPS) and Laurus Labs (103.0 times/30.4 times its FY25E/FY26E EPS) indicating attractive valuation for Neuland Pharma.

We track Neuland Lab, as of now, without any coverage. The company enjoys much better asset turns vs. its peers. However, the margins for the company are likely to normalize in FY25E versus FY24 on account of-

1. ongoing investments in capacity additions,

2. lead time for ramp up in commercialization of new molecules and

3. unlikely repeat of favorable business mix and benign input cost in FY25.

However, the management also believes that improved business is likely over medium term with the ramp up in CMS and specialty.

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