India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Glenmark Pharma – Well positioned for growth
We forecast 25% earnings CAGR over FY10-13F buoyed by Glenmark's sound strategy of
focusing on niche therapies, annuity-type opportunities in the US and an expansionary outlook for
margins. The NCE pipeline is seeing traction and could be a potential dark horse. Initiate
coverage with a Buy rating, TP Rs400.
Focus on niche therapies to drive growth; US remains the key driver
Glenmark’s sound strategy of focusing on niche therapies has led to strong growth in the past
(25% earnings CAGR in FY05-10) and forms the basis for our 25% earnings CAGR in FY10-13F
forecasts. We believe the growth drivers are: 1) annuity-type opportunities in US generics (Tarka,
Oxycodone, Malarone); 2) focus on high margin oral contraceptives; 3) gradual expansion in
EBITDA margins (ex-NCE) from 23.6% in FY11F to 24.3% in FY13F due to benefits from
operating leverage; 4) turnaround in East Europe and Latin America markets; and 5)
improvement in working capital cycle and leverage.
Glenmark differentiates itself from the other Indian pharma companies through its focus on novel,
first-in-class NCE developments for which it has received about US$140m in milestone payments
for out-licensing since FY05, although it has faced setbacks too. We note that in-licensing interest
from big pharma is reviving, as seen from Sanofi-Aventis’ recent in-licensing of Glenmark’s GRC
15300 with an upfront payment of US$20m (and potential milestone receipts of US$305m plus
royalty payments). This has rekindled interest in Glenmark’s remaining NCE pipeline of six
molecules (excluding those in-licensed) for which we have not ascribed any value. Also, we
expect Glenmark to commercialise Crofelmer (an in-licensed product) in RoW in FY13 post its
commercialisation in US in FY12 by its partners.
We initiate coverage on Glenmark with a Buy and a Rs400 target price
We value Glenmark’s core business at a 15% PE discount to the sector valuation to factor in
Glenmark’s relatively small scale and size, longer working capital cycle and higher gearing
compared to industry leaders. Glenmark’s base business at 19.4x FY12F PE yields Rs363/sh, to
which we add a value of Rs3.8/sh for one-off Paragraph IV products and Rs34/sh for the NCE
pipeline (Crofelemer and GRC 15300). Our resulting target price of Rs400 implies potential
upside of 15%. We therefore initiate coverage with a Buy
No comments:
Post a Comment