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UBS Investment Research
Glenmark Pharmaceuticals
U pgrade on robust outlook, cheap vals
Event: Accounting change, weak FY11 margins lead to stock correction
Co. reported only FY11 IFRS GAAP nos. Adj. EBITDA margin for FY11 at
19.7% significantly below our est. of 23.3%. However, higher other income, lower
depreciation and low tax rate helped PAT to Rs 4.58bn, only 6% below UBS-e.
Impact: IFRS positive; Stronger sales offsets lower margins
We see the shift to IFRS as a significant positive leading to improving earnings
quality. Implied Q4FY11 sales was ahead of our est. due to better than expected
performance in API, US and ROW mkts. Adj. FY11 India growth was robust at
17%YoY. As a result we raise our FY12 sales. First to file US launches of
Malarone and Cutivate, as well as strong growth across all key markets (India, US
& ROW) should help drive 140bps YoY improvement in EBITDA margin to
21.1% in FY12.
Action: Raise to Buy on compelling valuations, robust outlook; Raise PT
We upgrade the stock to Buy. Stock valuations at 15x FY12 remain compelling
despite our est. being significantly below mgmt. guidance of 25%+ revenue growth
and 22%-23% EBITDA margin for FY12. Higher royalties from Calcipotriene
ramp up can help drive upside to our earnings.
Valuation: Upgrade to Buy, Raise PT to Rs 350 (from Rs 335)
We derive our 12mth price target using DCF-based methodology and explicitly
forecast long term valuation drivers using UBS’s VCAM tool with WACC of 11%.
At our PT the stock would trade at 16x FY13 earnings. The stock has been a
significant underperformer and trades at 15% discount to peers on FY12 PE.
Glenmark Pharmaceuticals
Glenmark Pharmaceuticals (Glenmark), incorporated in 1977, is focused on the
manufacture and global marketing of finished dosages and API. Glenmark is
among few Indian companies investing in new drug discovery research.
Melogliptin, a DPP IV inhibitor has completed Phase IIb trials. Glenmark's
revenue in FY10 was Rs23.9bn. The global API business contributed 11% of
sales. It main markets are in India, the US and Latin America. The company is
increasing its presence in EU and semi-regulated markets.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
competition from rival drug therapies, litigation (including the appeal process),
accounting/disclosure, and product pricing risk from generics competition.
Pricing pressure in the US market because of increased competition may
continue in 2007. Glenmark is increasing its focus on the US business. Risks
relating to the generic pharma sector in US become increasingly applicable now.
Continued rupee appreciation is likely to put further pressure on operating
margins going forward. Glenmark has outlicensed 1 NCE molecule on which it
will get milestone payments as well as royalties in case of a successful launch.
Failure of one or more of these molecules represents a potential risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Glenmark Pharmaceuticals
U pgrade on robust outlook, cheap vals
Event: Accounting change, weak FY11 margins lead to stock correction
Co. reported only FY11 IFRS GAAP nos. Adj. EBITDA margin for FY11 at
19.7% significantly below our est. of 23.3%. However, higher other income, lower
depreciation and low tax rate helped PAT to Rs 4.58bn, only 6% below UBS-e.
Impact: IFRS positive; Stronger sales offsets lower margins
We see the shift to IFRS as a significant positive leading to improving earnings
quality. Implied Q4FY11 sales was ahead of our est. due to better than expected
performance in API, US and ROW mkts. Adj. FY11 India growth was robust at
17%YoY. As a result we raise our FY12 sales. First to file US launches of
Malarone and Cutivate, as well as strong growth across all key markets (India, US
& ROW) should help drive 140bps YoY improvement in EBITDA margin to
21.1% in FY12.
Action: Raise to Buy on compelling valuations, robust outlook; Raise PT
We upgrade the stock to Buy. Stock valuations at 15x FY12 remain compelling
despite our est. being significantly below mgmt. guidance of 25%+ revenue growth
and 22%-23% EBITDA margin for FY12. Higher royalties from Calcipotriene
ramp up can help drive upside to our earnings.
Valuation: Upgrade to Buy, Raise PT to Rs 350 (from Rs 335)
We derive our 12mth price target using DCF-based methodology and explicitly
forecast long term valuation drivers using UBS’s VCAM tool with WACC of 11%.
At our PT the stock would trade at 16x FY13 earnings. The stock has been a
significant underperformer and trades at 15% discount to peers on FY12 PE.
Glenmark Pharmaceuticals
Glenmark Pharmaceuticals (Glenmark), incorporated in 1977, is focused on the
manufacture and global marketing of finished dosages and API. Glenmark is
among few Indian companies investing in new drug discovery research.
Melogliptin, a DPP IV inhibitor has completed Phase IIb trials. Glenmark's
revenue in FY10 was Rs23.9bn. The global API business contributed 11% of
sales. It main markets are in India, the US and Latin America. The company is
increasing its presence in EU and semi-regulated markets.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
competition from rival drug therapies, litigation (including the appeal process),
accounting/disclosure, and product pricing risk from generics competition.
Pricing pressure in the US market because of increased competition may
continue in 2007. Glenmark is increasing its focus on the US business. Risks
relating to the generic pharma sector in US become increasingly applicable now.
Continued rupee appreciation is likely to put further pressure on operating
margins going forward. Glenmark has outlicensed 1 NCE molecule on which it
will get milestone payments as well as royalties in case of a successful launch.
Failure of one or more of these molecules represents a potential risk.
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