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GNP Pharmaceuticals
IFRS transition impacts numbers!
Event
GNP reported full year FY11 financials under International Financial Reporting
Standards (IFRS) for the first time. GNP reported FY11 revenue of Rs29.5bn
(up 19% YoY) and PAT of Rs4.6bn (up 38% YoY). GNP indicated net impact
of Rs650m at the PBT level due to the transition (higher employee cost due to
ESOP expensing). Adjusting for the same results were in-line with estimates.
Guidance for FY12: GNP guided for FY12 sales growth of 20 to 25%, with an
EBITDA margin of ~ 23% under IFRS. One of the major reasons for EBITDA
margins being lower going forward is that under IFRS other operating income
(~ Rs500m, including export incentives) would need to accounted for below
the EBITDA line. We maintain our OP rating with a revised TP of Rs445.
Impact
US business - strong momentum – key to our FY12 thesis: US sales
were ~ US$49m (up 19% YoY, 10% QoQ) driven by ramp up of new
launches (Oxycodone and Felodipine). Despite the loss of Tarka, key
product-specific opportunities will help drive FY12 profits: (1) Felodipine
(US$4m/Qtr) (2) Oxycodone (US$5m/Qtr) (3) Malarone (Sept-11 launch,
US$4m /Qtr) and (4) Dovonex (launched, US$2m royalty /qtr).
Strong domestic sales: The Indian formulation business contributed ~30% to the
top line and grew by 12% YoY. FY11 sales do not include VAT/other taxes of
around Rs450m (included in previous year sales), thereby understating
growth. Adjusting for same, domestic business grew 19% YoY.
IFRS transition – near-term pain, long-term gain: Intangibles worth Rs4.5b
were written down and adjusted against reserves under IFRS. Also factoring
worth Rs1.5b is not treated as a contingent liability under IFRS and hence
increases the debt by that amount. Net-debt to equity rises to 0.9x and the
ROE under IFRS reporting ~ 22%.
Earnings and target price revision
We have adjusted our core EPS for FY12/13E to Rs19.3/25 from Rs 20.5/25
primarily due to higher employee expense assumptions. Our TP is now
revised to Rs445 from Rs470 earlier. Our FY12 reported sales growth and
EBITDA margin are 15% and 23.4% respectively vs. the GNP guidance of
20% sales growth and 23% EBITDA margin.
Price catalyst
12-month price target: Rs445.00 based on a Sum of Parts methodology.
Catalyst: Ramp-up in US sales, Crofelemer approval by FDA.
Action and recommendation
Valuations are attractive, in our view, with GNP trading at a PER of 11.4x
FY12E earnings, adjusted for exclusivity and NCE value. Near-term pressure
on the stock due to the impact of IFRS transition (lower EBITDA margins and
intangible write-offs) should provide entry opportunity, in our opinion.
Conference Call - Takeaway
Rs 4.5b adjustment against the reserves on account of intangible asset amortization under the
IFRS. D/E is now around 0.9x and ROE of ~ 22% under IFRS.
Receivable-days were down to 138 days including securitized receivables (was 212 days
including securitized receivables at the end of FY10). Excluding securitized receivables, the
receivable days were down to 118 days from 156 days at the end of FY10.
Net debt for GNP end of FY11 was ~ Rs19b. Under the IFRS, factoring is not considered as
contingent liability and hence net debt for GNP increased by Rs1.5b. Adjusting for same, the
net debt would be Rs17.5b. Capex guidance for FY11 is Rs 3b.
Employee cost under IFRS was affected due to accounting of ESOPs that raised the
expenses by Rs6b. A large part of this according to GNP is not recurring in nature. Also the
interest cost was higher under IFRS by Rs0.35b (0.12b FCCB interest cost and Rs 0.22b bank
charges).
India sales were impacted by Rs4.5b, as sales reported for FY 11 do not include VAT/other
taxes, while the FY10 sales numbers are inclusive of VAT/other taxes. Adjusting for the same,
the growth was a healthy 19%. IMS is reporting secondary sales growth of 23% for GNP in
FY11.
Guidance of 20 to 25% sales growth and 23% EBITDA margin under IFRS for FY12.
Segments business update
US business: The US business grew 16% YoY to Rs8.3b. GNP was granted 22 ANDA approvals in
FY11, comprised of 18 final and four tentative approvals. GNP launched a total of 25 products during
fiscal year 2011 comprised of a mix of immediate release tablets, extended release tablets, oralcontraceptives,
semi-solid and controlled substance items. Total ANDA filed in FY11 was 13. GNP
plans to file 20 ANDAs in FY12.
India: India formulation sales grew 12% YoY to Rs8.4b. GNP India business consolidated its
presence in Anti-infectives (market share increased from 1.25% to 1.32%), Cardiac (market share
increased from 2.09% to 2.41%), Respiratory (market share increased from 2.18% to 2.92%),
Pain/Analgesic (market share increased from 0.99% to 1.02%), Gynaecology(market share
increased from 13% to 1.21%) and Dermatology was at a market share of 8.11%.
Africa, Asia and CIS Region
Total revenue from Africa, Asia and CIS region grew by 5% to Rs4b. The lower reported growth
is mainly on account of a high base effect in the previous year. Secondary sales were very strong
in FY11 (up > 30% YoY) and should be reflected in primary sales going forward. Management is
guiding for 25% YoY growth in SRM for FY12.
Latin America: Latam grew by 41% YoY. GNP filed 29 product dossiers during the quarter and
received 22 product approvals. GNP continues to consolidate its presence in the region and
expects sequential growth going forward, given the restructuring of operations carried out over
the past few quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GNP Pharmaceuticals
IFRS transition impacts numbers!
Event
GNP reported full year FY11 financials under International Financial Reporting
Standards (IFRS) for the first time. GNP reported FY11 revenue of Rs29.5bn
(up 19% YoY) and PAT of Rs4.6bn (up 38% YoY). GNP indicated net impact
of Rs650m at the PBT level due to the transition (higher employee cost due to
ESOP expensing). Adjusting for the same results were in-line with estimates.
Guidance for FY12: GNP guided for FY12 sales growth of 20 to 25%, with an
EBITDA margin of ~ 23% under IFRS. One of the major reasons for EBITDA
margins being lower going forward is that under IFRS other operating income
(~ Rs500m, including export incentives) would need to accounted for below
the EBITDA line. We maintain our OP rating with a revised TP of Rs445.
Impact
US business - strong momentum – key to our FY12 thesis: US sales
were ~ US$49m (up 19% YoY, 10% QoQ) driven by ramp up of new
launches (Oxycodone and Felodipine). Despite the loss of Tarka, key
product-specific opportunities will help drive FY12 profits: (1) Felodipine
(US$4m/Qtr) (2) Oxycodone (US$5m/Qtr) (3) Malarone (Sept-11 launch,
US$4m /Qtr) and (4) Dovonex (launched, US$2m royalty /qtr).
Strong domestic sales: The Indian formulation business contributed ~30% to the
top line and grew by 12% YoY. FY11 sales do not include VAT/other taxes of
around Rs450m (included in previous year sales), thereby understating
growth. Adjusting for same, domestic business grew 19% YoY.
IFRS transition – near-term pain, long-term gain: Intangibles worth Rs4.5b
were written down and adjusted against reserves under IFRS. Also factoring
worth Rs1.5b is not treated as a contingent liability under IFRS and hence
increases the debt by that amount. Net-debt to equity rises to 0.9x and the
ROE under IFRS reporting ~ 22%.
Earnings and target price revision
We have adjusted our core EPS for FY12/13E to Rs19.3/25 from Rs 20.5/25
primarily due to higher employee expense assumptions. Our TP is now
revised to Rs445 from Rs470 earlier. Our FY12 reported sales growth and
EBITDA margin are 15% and 23.4% respectively vs. the GNP guidance of
20% sales growth and 23% EBITDA margin.
Price catalyst
12-month price target: Rs445.00 based on a Sum of Parts methodology.
Catalyst: Ramp-up in US sales, Crofelemer approval by FDA.
Action and recommendation
Valuations are attractive, in our view, with GNP trading at a PER of 11.4x
FY12E earnings, adjusted for exclusivity and NCE value. Near-term pressure
on the stock due to the impact of IFRS transition (lower EBITDA margins and
intangible write-offs) should provide entry opportunity, in our opinion.
Conference Call - Takeaway
Rs 4.5b adjustment against the reserves on account of intangible asset amortization under the
IFRS. D/E is now around 0.9x and ROE of ~ 22% under IFRS.
Receivable-days were down to 138 days including securitized receivables (was 212 days
including securitized receivables at the end of FY10). Excluding securitized receivables, the
receivable days were down to 118 days from 156 days at the end of FY10.
Net debt for GNP end of FY11 was ~ Rs19b. Under the IFRS, factoring is not considered as
contingent liability and hence net debt for GNP increased by Rs1.5b. Adjusting for same, the
net debt would be Rs17.5b. Capex guidance for FY11 is Rs 3b.
Employee cost under IFRS was affected due to accounting of ESOPs that raised the
expenses by Rs6b. A large part of this according to GNP is not recurring in nature. Also the
interest cost was higher under IFRS by Rs0.35b (0.12b FCCB interest cost and Rs 0.22b bank
charges).
India sales were impacted by Rs4.5b, as sales reported for FY 11 do not include VAT/other
taxes, while the FY10 sales numbers are inclusive of VAT/other taxes. Adjusting for the same,
the growth was a healthy 19%. IMS is reporting secondary sales growth of 23% for GNP in
FY11.
Guidance of 20 to 25% sales growth and 23% EBITDA margin under IFRS for FY12.
Segments business update
US business: The US business grew 16% YoY to Rs8.3b. GNP was granted 22 ANDA approvals in
FY11, comprised of 18 final and four tentative approvals. GNP launched a total of 25 products during
fiscal year 2011 comprised of a mix of immediate release tablets, extended release tablets, oralcontraceptives,
semi-solid and controlled substance items. Total ANDA filed in FY11 was 13. GNP
plans to file 20 ANDAs in FY12.
India: India formulation sales grew 12% YoY to Rs8.4b. GNP India business consolidated its
presence in Anti-infectives (market share increased from 1.25% to 1.32%), Cardiac (market share
increased from 2.09% to 2.41%), Respiratory (market share increased from 2.18% to 2.92%),
Pain/Analgesic (market share increased from 0.99% to 1.02%), Gynaecology(market share
increased from 13% to 1.21%) and Dermatology was at a market share of 8.11%.
Africa, Asia and CIS Region
Total revenue from Africa, Asia and CIS region grew by 5% to Rs4b. The lower reported growth
is mainly on account of a high base effect in the previous year. Secondary sales were very strong
in FY11 (up > 30% YoY) and should be reflected in primary sales going forward. Management is
guiding for 25% YoY growth in SRM for FY12.
Latin America: Latam grew by 41% YoY. GNP filed 29 product dossiers during the quarter and
received 22 product approvals. GNP continues to consolidate its presence in the region and
expects sequential growth going forward, given the restructuring of operations carried out over
the past few quarters.
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