Eris Lifesciences is pricey. No doubt about it. 500 would have been a right price. Seller was an accomplished private equity fund so they knew how to price the issue. This is not a value play. This is purely a growth story.
I like the genesis of the company. It is founded by a salesman and not a doctor. He worked for MNC pharma so knows nuts and bolts of the industry. Domestic pharma is all about selling a commodity molecule at high prices using your sales machine. Their field force productivity is second best in India (Sun Pharma is number one).
I see a lot of runway ahead. India is going to be a diabetic capital of the world as we are the largest producer of sugar in the world. Vegetarian diets are getting loaded with fats like butter, cheese and oil so that will (unfortunately) lead to an epidemic of heart disease.
Eris focuses on cardiovascular and anti-diabetic segments of the market which are actually niche but fastest growing segments of IPM. Eris with its still small share of the market has a long way to go. So a company gaining market share in a market that itself is expected to grow at a high rate for several years is a compelling growth story.
Being a sales focused supply chain company, they use analytics to see what's selling and where's the niche and sell that unlike other companies that make things first and then go looking for customers. With the new plant, they are now capturing some value in the manufacturing part of the supply chain as well.
they are not export oriented company so no USFDA issue. I am also hoping that domestic price controls will be mostly limited to acute segment and will not impact chronic lifestyle diseases.
Pharma companies tend to produce stable earnings so they should be discounted at a lower rate producing higher valuation. From an investment perspective, as long as we get 25-30% EPS growth over the next 3-5 years, stock will not be re-rated down a lot from current levels.
GST related de-stocking could be an immediate risk for Q1 risk but the long term story is good.