Eris Lifesciences eyes margin recovery as Semaglutide and insulin ramp up

Investment View and Valuation

PL Research retained its BUY rating on Eris Lifesciences in its July 30, 2026 Q1FY27 result update, while reducing the target price to Rs 1,700 from Rs 1,750. The broker expects operating improvement from H2FY27E and FY28E, led by the ongoing ramp-up of Semaglutide, commercialisation of the Bhopal facility and growth in the insulin franchise.

PL Research values Eris Lifesciences at 17 times FY28E EV/EBITDA for its revised target price. The broker identifies insulin analogues, Semaglutide, new launches and the structurally higher-growth biologics portfolio as multiple growth levers.

Q1FY27 Financial Performance

Eris Lifesciences reported Q1FY27 net sales of Rs 8,733 million, up 13 per cent year on year and 3 per cent above PL Research's estimate of Rs 8,465 million. Domestic branded formulations, including the Biocon business, grew 14 per cent year on year, aided by Semaglutide and insulin sales.

Segmental domestic branded formulation revenue was Rs 8,010 million, while Swiss Parenterals revenue was Rs 720 million, up 6 per cent year on year but down 16 per cent sequentially. EBITDA was broadly in line with the broker's estimate, while reported PAT was 3 per cent below the estimate of Rs 1,469 million.

Margin Pressure and Expected Recovery

Margins were the principal weak point in the quarter. EBITDA margin declined 190 basis points year on year and 230 basis points sequentially to 33.9 per cent. Gross margin fell 351 basis points year on year and 291 basis points sequentially, reflecting product-mix changes and higher solvent prices.

• Domestic formulation margin was 35 per cent versus 37 per cent in Q4FY26.
• Swiss Parenterals margin was 27 per cent versus 32 per cent in Q4FY26.
• Other expenses increased 10 per cent year on year.

PL Research expects gross margins to bottom out by H1FY27E and improve from Q3FY27E. The broker expects the ramp-up of the Bhopal plant to support EBITDA-margin recovery in H2FY27E.

Semaglutide, Insulin and Bhopal Ramp-up

Management indicated that the Bhopal facility is expected to commercialise in August 2026, with ramp-up largely completed by the end of Q3FY27E. Engineering batches for Semaglutide, degludec and the degludec combination have been completed, with filings expected in Q2FY27E.

• Insulin Aspart is planned for launch in calendar year 2026.
• Other insulin analogues are targeted for calendar year 2027.
• Insulin is gaining market share, although RHI cartridges faced stock-outs in Q1FY27.
• Insulin gross margins were 30 to 31 per cent.

Semaglutide achieved a 20 per cent volume share and a 14 per cent value share in its first full quarter after launch. Management said sales trends improved in Q2FY27E, prices were maintained and initial supply constraints eased following inventory build-up and manufacturing integration.

Domestic Branded Formulations Outlook

Management expects cardiac growth, which was affected by hypertension, to recover to market growth within two quarters. Two cardiac products are being revived and Esaxerenone is expected to launch in August 2026.

• Diabetes underlying growth was 5 to 6 per cent, with the Glimisave MV base effect expected to normalise shortly.
• Women's Health was growing ahead of the market.
• CNS was expected to retain market-beating growth.
• Medical-representative strength was about 4,000.
• Q1FY27 capital expenditure was Rs 880 million.

Key Risks: Swiss Parenterals and International Operations

The key near-term risk is Swiss Parenterals and the international operations. Management guided the international business to flattish to low-single-digit growth in FY27E, with potential margin pressure of about 200 to 300 basis points due to freight and supply-chain disruption.

Facility remediation has constrained Swiss Parenterals growth, although management expects the revenue impact to be limited. International sites are expected to be audit-ready by December 2026.

Revised Estimates

PL Research reduced its FY27E and FY28E sales estimates by 0.6 per cent and 0.4 per cent, respectively. EBITDA estimates were reduced by 4.7 per cent and 2.1 per cent, while EPS estimates were reduced by 6.4 per cent and 3.2 per cent, respectively.