Anand Rathi: Glenmark Pharma Poised for turnaround; initiate with Buy

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Glenmark Pharma
Poised for turnaround; initiate with Buy
We initiate coverage on Glenmark Pharma with Buy and target
price of `373. We are positive on the stock, given turnaround in
the base business, pipeline of key product launches,
monetisation of new chemical entity (NCE) pipeline and
improving financials.
 Set to witness turnaround. Glenmark is well poised to witness
turnaround, post disappointing performance in FY09 and FY10. We
expect 17.1% revenue CAGR (ex NCE income) over FY10-13e
driven by recovery in the US (increasing ANDA approvals and
launch of Tarka) and Latin America (restructuring complete, returns
to begin), and the growing Indian market.
 Monetising NCE pipeline. Glenmark is the only Indian company
to have successfully monetised NCEs; its recent outlicensing of
GRC15300 to Sanofi Aventis reinforces our confidence in its
monetising capability. We value GRC15300 at `14 per share, with
likely success in other compounds to provide upside.
 Improving financials. We expect Glenmark to register 17.1%
revenue CAGR and 25.5% net profit CAGR over FY10-13e. This
coupled with improvement in working capital cycle (194 days in
FY13e from 218 days in FY10), would strengthen the balance sheet
and return ratios.
 Valuation and risks. We value Glenmark at `373, valuing base
business at `339 based on 18x (10% discount to large-cap peers and
considering the past 2-year average forward PE of 19x) FY12e
base business earnings and `24 for NPV of exclusivity