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UBS Investment Research
Glenmark Pharmaceuticals
Fully priced after the rally, maintain Sell
Raise price target on improving earnings and balance sheet
We raise our price target for Glenmark Pharmaceuticals (Glenmark) from
Rs270.00 to Rs370.00, based on higher earnings from niche launches in the US and
our lower WACC assumption, from 12% to 11.2%, following significant
improvement in the balance sheet. Receivable days fell from 165 in FY10 to 131 in
H1 FY11. Gross debt (including securitised receivables) was down from Rs22.6bn
in Q4 FY10 to Rs19.5bn in Q2 FY11. We think these signs are encouraging.
Several niche opportunities in the US
We incorporate Tarka (at-risk), Cutivate, and Malarone first-to-file in our
estimates. Glenmark launched Tarka at-risk at the end of Q1 FY10. Management
will base its decision on the Cutivate launch on the outcome the summary motion
in December 2010/January 2011; its 30-month stay expires in April 2011. It has
settled the Malarone patent litigation with GlaxoSmithKline and is to launch the
product in Q3 FY12. The company’s partner, Leigh Valley Technologies, filed a
New Drug Application for Oxycodone (capsules and liquid solutions) in March
2010 for FDA approval.
Based on these opportunities, we raise our EPS estimates from Rs16.68/18.21/20.3
to Rs18.21/20.45/23.57 for FY11/12/13.
Valuation: maintain Sell rating
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11.2%. We do not ascribe any value to the novel chemical entity pipeline.
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