Diwali Muharat Pick: Glenmark Pharma: ICICI Sec

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Glenmark Pharma: Time to Re-rate…


With a slew of good performances after a prolonged difficult patch
attributable to some R&D failures, the company has come a long way. On
account of receding pressure on the balance sheet, continuance of the
generic business under its fold and new product launches, we expect A
drastic improvement in the financials.




􀂃 Domestic formulations, the real backbone

Glenmark’s domestic formulations business is growing at a CAGR of
~20% since FY07. We expect the momentum to continue during
FY10-12E as well on account of a strong presence in dermatology,
cardiac, respiratory, anti-infectives and foray into oncology. New
product launches and increased field force will also strengthen the
growth prospects. This business accounts for ~30% of topline.

􀂃 Good traction seen in the US generic business

We expect the US generics business (accounts for ~30% of sales)
to grow at a CAGR of ~20% between FY10 and FY12E on account
of a good filing run-rate, monetisation of these filings on account of
product launches (including at-risk launches) and marketing tie-ups.
It has filed ~110 ANDAs and received ~70 approvals. At-risk launch
of anti-hypertensive Tarka is already fetching US$4-5 million per
quarter. The company plans to launch at least six products in the
US in the current fiscal.

􀂃 Other geographies to join bandwagon, R&D outcome yet to factor

Glenmark plans to grow in Lat-Am markets such as Mexico,
Venezuela and Peru. It has also short-listed countries such as Russia,
Ukraine and Vietnam as the next big markets for growth. On the R&D
front, we are waiting for clear visibility to factor any milestone from
GRC-15300 and likely upfront payment for upcoming GRC-17536.

Valuation

Glenmark is currently trading at ~18x FY11E EPS of Rs 18.17 and ~15x
FY12E EPS of Rs 21.75. As discussed earlier, the scrip is still trading at a
25-30% discount to its peers and also at a discount to a forward P/E of 1x.
We believe this gap will be plugged-in in due course. We have valued
Glenmark at Rs 413, which is 19x FY12E EPS of Rs 21.75.

Technical Outlook

• The stock has seen a long sideways consolidation in the broad
range of Rs.300-210 levels since August 2009 till date. A look at
the long term monthly price chart shows that the said
consolidation has occurred in a well defined “Ascending Triangle
Pattern”
• Recent price action has seen the stock registering a strong
volume led break-out past the said triangle pattern above Rs.300
on a monthly closing basis. The break-out from more than a year
long consolidation price pattern would propel the stock into a
medium term uptrend
• MACD oscillator which is a measure of strength in the trend, has
ventured into positive territory above the trigger line and supports
the bullish argument