Glenmark Pharmaceuticals (GLEN.NS): 1Q Miss, Steady Growth + NCE Option = OW :Morgan Stanley Research
Earnings growth momentum (18% two-year CAGR), driven by geographic diversification (India, US, Brazil, Russia), presence in faster-growing therapies (dermatology, cardio, respiratory), focus on niche in the US, and NCE/ NBE optionality drive our OW rating. PT raised to Rs617.
Management outlook: GNP retained its FY14 guidance of: 1) total sales growth of 20% and US at 18%; 2) core EBIDTA to be about Rs12.25bn; 3) R&D spend at 8-9% of sales; 4) net working capital days of 105-115 days (vs 115 days in F1Q14); 5) tax rate of 18%; and 6) tangible asset addition of Rs2.5bn and intangibles of Rs0.5-1.0bn (in-licensing of products). GNP expects to outperform the industry growth rates in EMs (India, Russia, Brazil) in the near term, but it highlighted key challenges in these markets, including delayed product approvals, unbranded generics and increasing government involvement in product pricing.
NCE/ NBE update: Clinical data (proof of concept) expected over the next 6-9 months for the following compounds: GRC 17536, GBR 500, GRC 15300 and GBR 900 (chronic pain - early read-through).
F1Q14 below expectation: GNP reported total revenues of Rs12.4bn, up 19% yoy (down 7.3% qoq), driven by US, India and RoW markets. Operating margins expanded 410bps yoy (90bps qoq), to 20%. These factors together led to Rs1.3bn in net profits, up 65% yoy (MTM losses in F1Q13) and down 23% qoq (lower taxes in F4Q13) - vs our Rs1.4bn forecast. Net debt as of June-2013 was Rs24.5bn (up Rs3bn qoq - translation effect).
Management outlook: GNP retained its FY14 guidance of: 1) total sales growth of 20% and US at 18%; 2) core EBIDTA to be about Rs12.25bn; 3) R&D spend at 8-9% of sales; 4) net working capital days of 105-115 days (vs 115 days in F1Q14); 5) tax rate of 18%; and 6) tangible asset addition of Rs2.5bn and intangibles of Rs0.5-1.0bn (in-licensing of products). GNP expects to outperform the industry growth rates in EMs (India, Russia, Brazil) in the near term, but it highlighted key challenges in these markets, including delayed product approvals, unbranded generics and increasing government involvement in product pricing.
NCE/ NBE update: Clinical data (proof of concept) expected over the next 6-9 months for the following compounds: GRC 17536, GBR 500, GRC 15300 and GBR 900 (chronic pain - early read-through).
F1Q14 below expectation: GNP reported total revenues of Rs12.4bn, up 19% yoy (down 7.3% qoq), driven by US, India and RoW markets. Operating margins expanded 410bps yoy (90bps qoq), to 20%. These factors together led to Rs1.3bn in net profits, up 65% yoy (MTM losses in F1Q13) and down 23% qoq (lower taxes in F4Q13) - vs our Rs1.4bn forecast. Net debt as of June-2013 was Rs24.5bn (up Rs3bn qoq - translation effect).
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