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Mixed Performance
Glenmark Pharmaceuticals’ 2QFY12 results were a mixed bag, with revenue at
Rs10.6bn being 24%/17% higher than our/consensus estimates, while PAT of
Rs552mn was 48%/71% below our/consensus estimates, respectively. While we
had accounted for US$28.8mn royalty payment to Paul Capital (possibly not
factored in by consensus estimate) and US$25mn milestone income from Sanofi
in our estimates, forex loss of Rs850mn led to earnings missing estimates. We
revise our FY12 revenue estimate upwards by 2% to reflect strong revenue growth
in 1HFY12, while we cut PAT estimate by 15% in line with weak 1HFY12 earnings.
We also include milestone income of US$4mn from Salix in FY13 (to be
recognised from June 2012), which consequently leads to a 2% increase in our
FY13 revenue estimate. We change our rating on the stock from Buy to Hold but
maintain our target price of Rs362.
PAT down, revenue up: Glenmark’s PAT of Rs552mn (down 50%YoY,73%QoQ) -
marred by forex loss of Rs850mn and royalty payment of Rs1.3bn to Paul Capital – was
48%/71% below our/consensus estimates, even though revenue at Rs10.6bn
(up42%YoY,22%QoQ) was 24%/17% above our/consensus estimates, respectively.
Margins at 21.4%, declined 386bps YoY and 1281QoQ. Core margins - adjusted for
forex loss of Rs850mn, milestone income of Rs1.2bn and royalty payment of Rs1.3bn –
stood at 20.5%, down 295bps YoY and 398bps QoQ, as gross margins reverted back to
historical level of 65% from 70% in 1QFY12 and 66% in 2QFY12. The company reported
strong growth across geographies, with the US (up 34%YoY), India (up 20%YoY) and
ROW markets (up 82%YoY) being the key contributors.
Valuation and outlook: Glenmark’s lower-than-expected earnings is an aberration in
our view and we remain upbeat about the company’s base business growth (expect 24%
CAGR in earnings over FY11-13E) led by strong traction in India and monetisation of
niche opportunities in the US (Malarone, Oxycodone and Cutivate). We value
Glenmark’s core business at Rs343 assigning a PE multiple of 15.3x FY13E EPS of
Rs22, at a 30% discount to its five-year average and a 20% discount to the sector for its
stretched Balance Sheet. We add Rs5.2 (20% discount for execution risks) for its Para
IV pipeline and another Rs14 for Crofelemor opportunity, valuing it at 65% success
probability and thus arriving at our target price of Rs362. We change our rating on the
stock from Buy to Hold
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mixed Performance
Glenmark Pharmaceuticals’ 2QFY12 results were a mixed bag, with revenue at
Rs10.6bn being 24%/17% higher than our/consensus estimates, while PAT of
Rs552mn was 48%/71% below our/consensus estimates, respectively. While we
had accounted for US$28.8mn royalty payment to Paul Capital (possibly not
factored in by consensus estimate) and US$25mn milestone income from Sanofi
in our estimates, forex loss of Rs850mn led to earnings missing estimates. We
revise our FY12 revenue estimate upwards by 2% to reflect strong revenue growth
in 1HFY12, while we cut PAT estimate by 15% in line with weak 1HFY12 earnings.
We also include milestone income of US$4mn from Salix in FY13 (to be
recognised from June 2012), which consequently leads to a 2% increase in our
FY13 revenue estimate. We change our rating on the stock from Buy to Hold but
maintain our target price of Rs362.
PAT down, revenue up: Glenmark’s PAT of Rs552mn (down 50%YoY,73%QoQ) -
marred by forex loss of Rs850mn and royalty payment of Rs1.3bn to Paul Capital – was
48%/71% below our/consensus estimates, even though revenue at Rs10.6bn
(up42%YoY,22%QoQ) was 24%/17% above our/consensus estimates, respectively.
Margins at 21.4%, declined 386bps YoY and 1281QoQ. Core margins - adjusted for
forex loss of Rs850mn, milestone income of Rs1.2bn and royalty payment of Rs1.3bn –
stood at 20.5%, down 295bps YoY and 398bps QoQ, as gross margins reverted back to
historical level of 65% from 70% in 1QFY12 and 66% in 2QFY12. The company reported
strong growth across geographies, with the US (up 34%YoY), India (up 20%YoY) and
ROW markets (up 82%YoY) being the key contributors.
Valuation and outlook: Glenmark’s lower-than-expected earnings is an aberration in
our view and we remain upbeat about the company’s base business growth (expect 24%
CAGR in earnings over FY11-13E) led by strong traction in India and monetisation of
niche opportunities in the US (Malarone, Oxycodone and Cutivate). We value
Glenmark’s core business at Rs343 assigning a PE multiple of 15.3x FY13E EPS of
Rs22, at a 30% discount to its five-year average and a 20% discount to the sector for its
stretched Balance Sheet. We add Rs5.2 (20% discount for execution risks) for its Para
IV pipeline and another Rs14 for Crofelemor opportunity, valuing it at 65% success
probability and thus arriving at our target price of Rs362. We change our rating on the
stock from Buy to Hold
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