Strict adherence to international regulations​

• Given that the company draws a significant amount of revenues from the highly regulated markets of Europe and North America, the company is required to be compliant with the strict regulations of the US FDA, UK MHRA, Health Canada, ANVISA Brazil, etc. among others. The company has in the past (2019) received a warning from the US FDA for 3 of its manufacturing facilities and the products under the warning are still under import alert.

​Reducing profitability over the years​

• Over the past two years, the company has experienced an increase in advertising and promotional expenses. Additionally, it has expanded its salesforce by over 1,000 personnel in the last 2 years. This expansion has led to a 12% decline in productivity, with revenue per salesperson dropping to Rs 5.7 lakh in FY2024 from Rs 6.5 lakh in FY2022. These increased costs have negatively impacted the company's operating and profit margins.

Market leaders in Gynecology and Antivirals​

• The company is a market leader in both the gynecology and HIV antiviral drug sectors. In the gynecology therapeutic area, it has a 13.5% market share, which is 1.7 times greater than its nearest competitor. In the domestic HIV antivirals market, the company holds a 51.5% market share. The gynecology segment contributes 24.1% to the company's domestic revenues, while antivirals account for 6.85% of domestic revenues.

Valuations

• Based on FY2024 financials, the company is seeking a PE of 36x and a market cap-to-sales ratio of 2.9x. This ask is reasonably less compared to the average of 40x commanded by the pharmaceutical industry. However, the significant gap in profitability between the company and the industry makes us pessimistic about its prospects. Therefore, we recommend avoiding this issue.​