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Key Takeaways
FY12 guidance: 23-25% top-line growth, 22-23% EBITDA margin
Glenmark Pharmaceuticals (GNP) management reiterated its 23-25% top-line growth
guidance for FY12 and EBITDA margin guidance of 22-23% (both excluding NCE-related
income). GNP estimates R&D expenses at INR2.25b and tax rate guidance is 14%. The
management aims to cut net debt to INR16b by the end of FY12. Debtor days are
expected to be at 125-130 days.
US revenue to grow ~25%; RoW, LatAm to grow 30%+
The management guidance is for ~25% revenue growth in the US to ~USD225m in
FY12. It has ~40 ANDAs awaiting US FDA approval (with four FTFs) and the management
believes ~75% of the pending ANDAs are in the niche/low-competition category. It
launched four oral contraceptives (OCs) out of six approvals over the past few quarters.
The management guidance is for 30% revenue growth for the RoW and 40% revenue
growth for LatAm in FY12.
Domestic formulations business to sustain 16-18% growth
The management indicated that GNP's domestic formulations business slowed in line
with the industry trend. However, GNP expects to sustain growth in the domestic
formulations business, which posted 16% CAGR over FY08-11.
Novel drug discovery: No further milestone income in FY12; FY13 to see some
developments
Management does not expect further milestone income in FY12 but it indicated that in
FY13 GRC15300 and GBR500 would move to the next stage of clinical trials, which would
trigger milestone payments. In FY13 GNP expects (1) to get phase II clinical trial data of
Rivamilast (GRC4039) for asthma and rheumatoid arthritis and (2) to complete phase I
clinical trial for GRC17536, after which it will evaluate out-licensing opportunities for
both the molecules.
Valuation and view
GNP has differentiated itself among Indian pharmaceutical companies through significant
success in NCE research (resulting in licensing income of USD202m so far). Given this
success, GNP has been adding new NCEs to its pipeline, which will put pressure on its
operations in the short to medium term as it will have to fund R&D expenses for these
NCEs on its own. High interest costs and the likely absence of strong forex gains will
pare FY12 operational performance. We expect EPS of INR16.1 in FY12 and INR19.7 in
FY13. The stock trades at 20x FY12E and 16.4x FY13E earnings with about 15-16%
RoCE. Maintain Neutral with a target price of INR310 (15x FY13E EPS + INR14 DCF
value of Crofelemer and Para-IV pipeline).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
FY12 guidance: 23-25% top-line growth, 22-23% EBITDA margin
Glenmark Pharmaceuticals (GNP) management reiterated its 23-25% top-line growth
guidance for FY12 and EBITDA margin guidance of 22-23% (both excluding NCE-related
income). GNP estimates R&D expenses at INR2.25b and tax rate guidance is 14%. The
management aims to cut net debt to INR16b by the end of FY12. Debtor days are
expected to be at 125-130 days.
US revenue to grow ~25%; RoW, LatAm to grow 30%+
The management guidance is for ~25% revenue growth in the US to ~USD225m in
FY12. It has ~40 ANDAs awaiting US FDA approval (with four FTFs) and the management
believes ~75% of the pending ANDAs are in the niche/low-competition category. It
launched four oral contraceptives (OCs) out of six approvals over the past few quarters.
The management guidance is for 30% revenue growth for the RoW and 40% revenue
growth for LatAm in FY12.
Domestic formulations business to sustain 16-18% growth
The management indicated that GNP's domestic formulations business slowed in line
with the industry trend. However, GNP expects to sustain growth in the domestic
formulations business, which posted 16% CAGR over FY08-11.
Novel drug discovery: No further milestone income in FY12; FY13 to see some
developments
Management does not expect further milestone income in FY12 but it indicated that in
FY13 GRC15300 and GBR500 would move to the next stage of clinical trials, which would
trigger milestone payments. In FY13 GNP expects (1) to get phase II clinical trial data of
Rivamilast (GRC4039) for asthma and rheumatoid arthritis and (2) to complete phase I
clinical trial for GRC17536, after which it will evaluate out-licensing opportunities for
both the molecules.
Valuation and view
GNP has differentiated itself among Indian pharmaceutical companies through significant
success in NCE research (resulting in licensing income of USD202m so far). Given this
success, GNP has been adding new NCEs to its pipeline, which will put pressure on its
operations in the short to medium term as it will have to fund R&D expenses for these
NCEs on its own. High interest costs and the likely absence of strong forex gains will
pare FY12 operational performance. We expect EPS of INR16.1 in FY12 and INR19.7 in
FY13. The stock trades at 20x FY12E and 16.4x FY13E earnings with about 15-16%
RoCE. Maintain Neutral with a target price of INR310 (15x FY13E EPS + INR14 DCF
value of Crofelemer and Para-IV pipeline).
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