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Glenmark (GLEN.BO): Limited growth; lack of NT pipeline catalysts
Source of opportunity
We raise our 12-month TP for Glenmark to Rs320 (from Rs296) on
the back of improving generics outlook in the US. We however,
eliminate our forecasts for milestone income for the stock, and
hence our net income forecasts are lowered. We remain Neutral
rated on the stock.
Limited opportunities despite renewed focus on US generics:
Glenmark has been broadening its US product basket with the
launch of multiple new products in the US in FY2011 till date. While
the increasing focus on generics is positive, we see limited one-off
product launches in the US market for Glenmark over the next 2-3
years, thereby limiting its growth trajectory.
Court verdict on Tarka a negative: The recent injunction of a US
district court prohibiting generic Tarka sales is a setback for
Glenmark in our view. Tarka was one of the most important product
opportunities for Glenmark heading into FY12E with sales potential
of around US$30 mn-US$35mn in 2011.
Crofelemer launch potentially in 2013/14: With the recent positive
Phase 3 data, we expect regulatory filings for this product to start in
2011. Glenmark has rights to market the product in 140 countries
and will also be the sole API provider. Assuming an initial launch in
around 40 countries, we estimate the peak sales potential of
Crofelemer to be around US$70 mn-US$80 mn by 2014/15.
Revise estimates as we eliminate milestone income forecast:
We lower our total revenue estimates as we remove the milestone
income from our forecasts, which, we believe are unlikely on a
regular basis in the future. However, we raise our core business
revenue forecasts to reflect our improved growth outlook. Hence,
our revenue and earnings estimates are revised by 11%-18% and -
13% to -19% across FY11E-13E.
Valuation
We increase our 12-month Director’s Cut-based target price to
Rs320, implying 12% potential upside. Our TP implies a FY12E P/E of
19.3X for Glenmark, vs. the sector at 15.5X.
Our target price includes a risk-adjusted NPV of the product pipeline
of Rs19 and a returns framework-based value of core business of
Rs301. We remove the 35% discount to the implied EV to reflect
challenges in Glenmark’s operating environment and profit warning,
which are considerably reduced now, in our view. The stock
currently trades at 17.2X on FY12E P/E, which is a 10% premium to
its peers. We maintain our Neutral rating.
Key risks
Downside risks: Pipeline failure, currency volatility (especially in emerging
markets). Upside risk: favorable litigation, early Crofelemer launch.
INVESTMENT LIST MEMBERSHIP
Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Glenmark (GLEN.BO): Limited growth; lack of NT pipeline catalysts
Source of opportunity
We raise our 12-month TP for Glenmark to Rs320 (from Rs296) on
the back of improving generics outlook in the US. We however,
eliminate our forecasts for milestone income for the stock, and
hence our net income forecasts are lowered. We remain Neutral
rated on the stock.
Limited opportunities despite renewed focus on US generics:
Glenmark has been broadening its US product basket with the
launch of multiple new products in the US in FY2011 till date. While
the increasing focus on generics is positive, we see limited one-off
product launches in the US market for Glenmark over the next 2-3
years, thereby limiting its growth trajectory.
Court verdict on Tarka a negative: The recent injunction of a US
district court prohibiting generic Tarka sales is a setback for
Glenmark in our view. Tarka was one of the most important product
opportunities for Glenmark heading into FY12E with sales potential
of around US$30 mn-US$35mn in 2011.
Crofelemer launch potentially in 2013/14: With the recent positive
Phase 3 data, we expect regulatory filings for this product to start in
2011. Glenmark has rights to market the product in 140 countries
and will also be the sole API provider. Assuming an initial launch in
around 40 countries, we estimate the peak sales potential of
Crofelemer to be around US$70 mn-US$80 mn by 2014/15.
Revise estimates as we eliminate milestone income forecast:
We lower our total revenue estimates as we remove the milestone
income from our forecasts, which, we believe are unlikely on a
regular basis in the future. However, we raise our core business
revenue forecasts to reflect our improved growth outlook. Hence,
our revenue and earnings estimates are revised by 11%-18% and -
13% to -19% across FY11E-13E.
Valuation
We increase our 12-month Director’s Cut-based target price to
Rs320, implying 12% potential upside. Our TP implies a FY12E P/E of
19.3X for Glenmark, vs. the sector at 15.5X.
Our target price includes a risk-adjusted NPV of the product pipeline
of Rs19 and a returns framework-based value of core business of
Rs301. We remove the 35% discount to the implied EV to reflect
challenges in Glenmark’s operating environment and profit warning,
which are considerably reduced now, in our view. The stock
currently trades at 17.2X on FY12E P/E, which is a 10% premium to
its peers. We maintain our Neutral rating.
Key risks
Downside risks: Pipeline failure, currency volatility (especially in emerging
markets). Upside risk: favorable litigation, early Crofelemer launch.
INVESTMENT LIST MEMBERSHIP
Neutral
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