Glenmark, Ex-US growth saves the day… • :: ICICI Securities, PDF link

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Ex-US growth saves the day…
• Revenues grew 14.3% YoY to | 1671.5 crore vs. I-direct estimate of
| 1666.2 crore, driven by 139% growth in Latin America, 25% growth
in Europe, 14% growth in India and 58% growth in APIs. The US, on
the other hand, registered negative growth
• EBITDA margins declined 160 bps to 20%, lower than I-direct
estimate of 21.3%. EBITDA in absolute terms increased 6.4% YoY to
| 335.8 crore less than I-direct estimate of | 354.3 crore
• Net profit increased 7% YoY to | 165.1 crore, lower than I-direct
estimate of | 181.7 crore on the back of muted growth in EBITDA
margins
US generics, India formulations main growth drivers; R&D can wait
The R&D setback in 2008-10 has in fact benefited the company as the
focus shifted to more productive segments such as the US, India and
RoW markets. The changed focus has improved the operating cash-flows
as well as leverage situation as the debt/EBITDA has improved from a
high of 4.6x in FY09 to 2.5x in FY14. Glenmark has also focused more on
niche therapies such as dermatology, oral contraceptives and respiratory
where the competition is relatively less intense.
US generics business provides impetus after R&D setbacks
After toying with R&D success and subsequent setbacks, the company
has successfully developed and nurtured the US generics franchise. US
generics now comprise ~35% of total turnover and have grown at a
CAGR of 23% in the last five years. Total USFDA filings as on date are
165. So far, the company has received approvals for 93. From the
pending ANDAs, 30 are Para IV applications. Key therapies in the US are
oral contraceptives, pain management and CVS. The new focus areas in
the US will be oncology, respiratory and dermatology. However, the
management remains guarded on the growth prospects in the US due to
the slower pace of product approvals in the US and consolidation in the
distribution space. We expect US sales to grow at a CAGR of 16% in
FY14-17E to | 3125 crore.
Targeting specific therapies in IPM
Glenmark ranks 16th in domestic formulations with a market share of
2.18%. It is the market leader in dermatology and improving its presence
in therapies such as respiratory, CVS and anti-infectives. It has defied
muted growth in the IPM in FY14 by growing at 16% vis-à-vis IPM growth
of 6% by churning the portfolio. We expect sales from India to grow at a
CAGR of 16% in FY14-17E to | 2353 crore.
US growth stuck for want of approvals; maintain HOLD
US growth faced headwinds in Q2 and the scenario is likely to persist as
the management remains sceptical about the approval momentum.
However, taking into account the product pipeline (including 30 Para IVs),
the prospects are likely to improve in FY16E and FY17E, if indeed the
momentum improves. Indian formulations growth is likely to remain at
elevated level (Q2 was slightly muted) going ahead. Other geographies
such as Europe, Latin America are emerging as new growth drivers but
these geographies are slightly lumpy in nature. Suffice to say that US
remains the main catalyst for growth. We have valued the company at
| 775 on SOTP basis. We ascribe | 768 to the base business based on 17x
FY17E EPS of | 45.2 with an NPV of | 7 for gZetia. \\\

LINK
http://content.icicidirect.com/mailimages/IDirect_GlenmarkPharma_Q2FY15.pdf