Eris Lifesciences - 1QFY19 – Strides Assimilation on Track

ERIS Lifesciences Limited – Acquisition Led Growth Story

ERIS Lifesciences – FY18 Annual Report Analysis - Strong Rebound in Cash Flow Likely from FY19E

Eris Lifesciences Ltd - Q4FY18 Beats Expectations, FY19E on Track

India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/16979" target="_blank">Eris Lifesciences (ERIS IN)</a> reported lower than expected performance in 2QFY19.  Revenues were 5% lower than our estimates at Rs 2,642 mn. The chronic category (62% of the total revenues) reported QoQ growth of ~5% v/s IPM growth of ~2%. Savings in other expenses led to EBITDA margins at 38.1% (100 bps higher than estimate). Higher other income, lower interest costs and effective tax rates led to a PAT of Rs 853 mn v/s our estimates of Rs 787 mn.
At present, ERIS is focusing on shifting the manufacturing to its Guwahati facility which enjoys tax benefits till FY25. This will lead to PAT margin expansion. The integration is taking longer than expected and the management now expects to complete by 2QFY20E. Streamlining of the acquired businesses and integration at the Guwahati facility will be the growth drivers for ERIS.
We forecast a revenue growth of ~19% CAGR (FY18-21E), EBITDA growth of ~21% CAGR (FY18-21E) and PAT growth of ~20%CAGR (FY18-21E). We have revised our FY19E-20E EPS estimates to Rs 23.7 / Rs 30.4 respectively and we expect FY21E EPS of Rs 36.8. Our fair value estimate of ERIS comes to Rs 1,000/- (v/s Rs 1,050/- earlier) for the next 12 months.
<table class="table table-striped">
<tbody>
<tr>
<td>
 
</td>
<td style="text-align: right;">
 FY17 
</td>
<td style="text-align: right;">
 FY18 
</td>
<td style="text-align: right;">
 FY19E 
</td>
<td style="text-align: right;">
 FY20E 
</td>
<td style="text-align: right;">
 FY21E 
</td>
</tr>
<tr>
<td>
PE (x)
</td>
<td style="text-align: right;">
35
</td>
<td style="text-align: right;">
29
</td>
<td style="text-align: right;">
26
</td>
<td style="text-align: right;">
21
</td>
<td style="text-align: right;">
17
</td>
</tr>
<tr>
<td>
ROE
</td>
<td style="text-align: right;">
43%
</td>
<td style="text-align: right;">
34%
</td>
<td style="text-align: right;">
28%
</td>
<td style="text-align: right;">
26%
</td>
<td style="text-align: right;">
27%
</td>
</tr>
<tr>
<td>
ROCE
</td>
<td style="text-align: right;">
48%
</td>
<td style="text-align: right;">
26%
</td>
<td style="text-align: right;">
28%
</td>
<td style="text-align: right;">
29%
</td>
<td style="text-align: right;">
29%
</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source: ERIS Annual Report 2018, Trivikram Consultants Research as of 15th November 2018</div>
<div class="content-caption">E = Estimates</div>

Eris Lifesciences (ERIS IN) reported lower than expected performance in 2QFY19.  Revenues were 5% lower than our estimates at Rs 2,642 mn. The chronic category (62% of the total revenues) reported QoQ growth of ~5% v/s IPM growth of ~2%. Savings in other expenses led to EBITDA margins at 38.1% (100 bps higher than estimate). Higher other income, lower interest costs and effective tax rates led to a PAT of Rs 853 mn v/s our estimates of Rs 787 mn.
At present, ERIS is focusing on shifting the manufacturing to its Guwahati facility which enjoys tax benefits till FY25. This will lead to PAT margin expansion. The integration is taking longer than expected and the management now expects to complete by 2QFY20E. Streamlining of the acquired businesses and integration at the Guwahati facility will be the growth drivers for ERIS.
We forecast a revenue growth of ~19% CAGR (FY18-21E), EBITDA growth of ~21% CAGR (FY18-21E) and PAT growth of ~20%CAGR (FY18-21E). We have revised our FY19E-20E EPS estimates to Rs 23.7 / Rs 30.4 respectively and we expect FY21E EPS of Rs 36.8. Our fair value estimate of ERIS comes to Rs 1,000/- (v/s Rs 1,050/- earlier) for the next 12 months.




 


 FY17 


 FY18 


 FY19E 


 FY20E 


 FY21E 




PE (x)


35


29


26


21


17




ROE


43%


34%


28%


26%


27%




ROCE


48%


26%


28%


29%


29%




Source: ERIS Annual Report 2018, Trivikram Consultants Research as of 15th November 2018
E = Estimates

Eris Lifesciences - 2QFY19 – Acquisitions Drive Top Line Much Higher, Bottom Line to Follow by FY20E