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

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Glenmark Pharmaceuticals Ltd.|Q2FY15 First Cut Analysis | Muted US sales and higher employee cost adversely affected earnings for the quarter-:: IndiaNivesh

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J.P. Morgan - Glenmark Pharmaceuticals Ltd

Glenmark Pharmaceuticals Ltd. (GNP IN) Medium term growth drivers in place; Improvement in US revenue growth key near term catalyst		Overweight Price: Rs579.85 13 Jun 2014 Price Target: Rs715.00 PT End Date: 31 Mar 2015

We remain positive on Glenmark’s medium term growth outlook post our meeting with management. We believe GNP’s FY15 performance will highlight the strength of its emerging market franchise with strong growth outlook for key markets like India, LatAm and RoW-SRM. While GNP is investing in building the long term growth pipeline in the US, FY15 growth would depend on the pick-up in ANDA approvals. The pending litigation claim and continued investment in US business could push large net debt reduction to FY16. We see further potential upside from current levels as the key catalysts unfold over the medium term.

· Near-term US growth to pick up with approvals, in our view: GNP’s tepid US performance over the last few quarters has been impacted by fewer ANDA approvals (7 approvals in FY14). Management pointed that US growth is likely to improve through FY15 (guidance 12-15% vs. 9% in FY14 on USD basis). While so far approvals have been slow (one approval in 1Q so far), in our view, improvement in approval trends and launches should help increase US revenue trend (~10 approvals expected in FY15). In line with our view, management pointed out that any potential pricing impact from US channel consolidation will be visible over the next few quarters. (Please see our note on “US channel consolidation - Diminishing the US opportunity for Indian generic players? No, in our view” published on 22 April 2014).

Figure 1: Fewer approvals but filing pace picking up Source: Company reports.

Figure 2: US revenue growth to improve post a muted FY14-15 Source: Company reports and J.P. Morgan.

· R&D investment for LT growth opportunities: GNP has some key products in FY16-18, which should improve growth to ~20% levels from FY15 levels (gFinacea, gOrtho Tri- Cyclen Lo, gZetia). GNP indicated that it would like to file ANDAs in at least one new niche therapy area every year. GNP announced filings in complex injectables, immunosuppressant from Indore facility with R&D expense increase 48% YoY in FY14. Therefore, the higher R&D spend guidance (9.5-10% vs. 9% in FY14) would be towards generic for the US market and also focus on pipeline to support growth opportunities post FY18. While R&D expense will continue to increase (28% CAGR over FY14-16), we expect R&D/Sales to remain in the 9.5-10% range over the medium term.

Figure 3: GNP ANDA filings trend Source: Company reports.

Figure 4: R&D spend as % of Sales to remain at 9.5-10% Source: Company reports and J.P. Morgan estimates.

· Ex-US growth on a strong footing. We have highlighted that the base of the EM is getting bigger but remains a key driver for GNP’s earnings and profitability over the next two years. Management remains focused on organic growth in its existing EM markets and reiterated growth guidance 18-20% for SRM-Row and 25-30% for LatAm (primarily due to Mexico, Venezuela, Argentina). While Europe achieved breakeven in FY14 (improve further in FY15), GNP expects Latam to follow suit this fiscal.

Figure 5: GNP's RoW-SRM Growth… Source: Company reports and J.P. Morgan estimates.

Figure 6: … and LatAm Growth to improve Source: Company reports and J.P. Morgan estimates.

· GNP’s India growth not a concern due to changing regulations: GNP remains confident on 18+% growth in India with high single digit to low teens growth for the domestic industry. Management pointed that any big change in growth momentum would depend on the regulation set by the new government. However, it indicated that the recent guidelines by NPPA are not applicable to all non-scheduled products but looking at addressing certain discrepancies in the market. (Please see our note on “Indian Pharmaceuticals: NPPA's new guidelines for non-scheduled formulation in domestic market” published on 9 June 2014).

· Potential Tarka liability to push debt reduction into FY16: We would view the improving operating performance (US growth improvement, EM performance, NCE/NBE monetization) as key drivers for outperformance in the near term and expect decline in net debt levels to flow through as FCF generation picks up from FY16 onwards. While we expect FCF generation of Rs3.4bn in FY15, potential payment related to Tarka litigation (liability of $26-27Mn, in our view) is likely to limit large net debt reduction. Management has pointed that any large milestone payment from its innovative R&D pipeline could likely be utilized toward debt repayment.

Figure 7: Net Debt Reduction Likely in FY16, in our view

Source: Company reports and J.P. Morgan estimates.

Table 2: GNP key opportunities in the US

Generic	Brand	Date	US Sales ($Mn)	Comment
Eszopiclone	Lunesta	May-14	780	Settled. Shared FTF
Telmisartan	Micardis	Jul-14	274	Patent expiry in Jan-14. Watson, Roxane (AG), Alembic and Glenmark are likely players
Fluocinonide	Vanos	Jul-14	30	Case settled with Medicis Pharma. Perrigo, Nycomed, Glenmark and Taro are settled for 15 Dec 2013 launch
Trandolapril+ Verapamil	Tarka	Feb-15	70	Under litigation. Patent expires in Feb-15 but GNP launched at risk launch (was withdrawn later)
Colesevelam hydrochloride	Welchol	Apr-15	174	Case settled with Daiichi Sankyo and Genyzme
Norgestimate and Ethinyl Estradiol	Ortho Tri-Cyclen Lo	Dec-15	450	Case settled.
Dronedarone	Multaq	Jul-16	320	GNP and Actavis has 180 day exclusivity
Rosuvastatin	Crestor	Jul-16	3600	District court ruled in favour of Innovator and upheld patent (expires in Jan-16). ARBP has FTF. Glenmark, Teva, Mylan, Watson, Sun, Sandoz have filed ANDA
Ezetimibe	Zetia	Dec-16	1700	Case settled. GNP has FTF. Till now, Mylan and Teva have filed, more expected to file.
Atomoxetine hydrochloride	Strattera	May-17	384	GNP has TA on all strengths. Lilly recently won appeals case, patent was upheld. DRRD, Teva, Sandoz, Zydus, Aurobindo have also tentative approvals.
Azelaic Acid, Gel 15% Topical	Finacea	Nov-18	95	Under litigation-GNP may be FTF applicant and may be entiled to 180 day generic exclusivity. 30 month stay completes in Dep-15
Lacosamide	Vimpat	Mar-22	353	Multiple ANDA filers. Glenmark has FTF
Bendamustine HCL	Treanda	-	680	Shared exclusivity

Source: Company reports, J.P. Morgan estimates.

Investment Thesis

We believe that GNP’s generic business growth, aided by a pick-up in US and emerging markets growth momentum, EBITDA margin expansion and a reduction in leverage through sustained increases in cash flow generation, should help narrow the valuation gap to its domestic peers. Further, GNP’s innovation R&D pipeline provides scope for upside surprise with new out-licensing opportunities

Valuation

Our Mar-15 price target of Rs715 is based on sum-of-the-parts with a base business P/E of 18x, at a 10% discount to its Indian peer group. We attribute an NPV of Rs37 from pipeline opportunities and Rs46 from its (NCE)/ (NBE) research pipeline to the target price.

Table 7: GNP SOTP Summary

	Rs/share
Base EPS Sep-15	35.1
Target Multiple	18	10% discount to domestic peers
Base Target price	632
FTF Opportunities	37
NCE/NBE Research Pipeline	46	Crofelemer RoW sales and GBR - 500
GNP Target price (Rs/share)	715

Source: J.P. Morgan estimates

Risks to Rating and Price Target

Key risks to our view include potential regulatory issues (especially related to the USFDA), an inability to monetize the NCE pipeline, further deterioration in working capital and an inability to expand its product basket

Strong Show; Upgrade To Buy On TP Roll-over To FY16 Glenmark Pharmaceuticals·:: Nirmal Bang

Strong Show; Upgrade To Buy On TP Roll-over To FY16
Glenmark Pharmaceuticals· (GPL) 3QFY14 performance showed a mixed trend. While
the 120bps QoQ expansion in margins was a key positive, stagnant US revenue and
lack of visibility on key product approvals/launches is a cause for concern. We have
retained our estimates (9MFY14 profit is 71% of our FY14 estimate), but upgraded the
rating on GPL to Buy (Hold earlier) as we rolled over our TP to FY16E earnings.
Consequently, our TP stands revised upwards at Rs651 (16xFY16E EPS of Rs40.7) from
Rs562 earlier (17xFY15E EPS of Rs33.0).
Operational performance above expectations:GPL¶V performance was above expectations
at the operating level. Revenue growth of 20% YoY was driven by Europe (combined
business ± generics+specialty - up 58% YoY) and API business (up 48% YoY, including
US$1mn from Crofelemer API supply to Salix), while domestic business growth (up 15% YoY,
led by strong growth in covered therapies) was healthy despite industry slowdown. The US
business declined by ~US$6mnQoQ, partly because of GPL suspending the sales of generic
Montelukast tablets following non-viability and lack of interesting product launches in the US
(7 approvals YTD FY14), while ROW markets grew strongly QoQ due to the seasonality effect
in key markets like Russia with the onset of winter. Following higher sales from low-margin
European business, gross margins were flat, but EBITDA margin at 22.8% (up 250bps YoY,
excl. milestone income in 3QFY13 and 120bps QoQ) was above our/Bloomberg consensus
estimates of 21%/21.5%, respectively, owing to higher operating leverage. Notably, GPL
achieved break-even in Europe operations. Reported PAT includes forex gains of Rs11mn.
US business rebound is key: *3/¶V 86 EXVLQHVV was stagnant for the past six quarters, at
around US$80mn (barring 2QFY14), owing to lack of interesting product launches in the US
and slow ramp-up of oral contraceptive portfolio. Given the fact that the US is one of the key
growth drivers, it is imperative that the approval/launch run-rate picks up in this market for
*3/¶V valuation to sustain. While product approvals in the US are subject to the US Food and
Drug Administration¶V timeline, we have noted some interesting generic product opportunities
in FY15 viz. Orthotricyclen lo (oral contraceptive drug, market size ~US$400mn, launch likely
on 31 December, 2015, as per the settlement with the innovator, five-six player market),
Vanos (dHUPDWRORJ\ GUXJ *3/¶V ODXQFK postponed from December 2013 to June 2014 post
Perrigo, the first-to-file or FTF) SOD\HU¶V VHWWOHPHQW ZLWK WKH LQQRYDWRU WR ODXQFK its product in
December 2013, market size US$40mn, four-player market likely) and Finacea (dermatology
drug, market size ~US$100mn, GPL has FTF and its 30-month period expires in June 2015).
Conference call takeaways: 1) GPL¶V net debt stood at Rs25.6bn as of end-December
2013, while the net working capital cycle improved slightly from 106 days (March 2013) to 110
days (December 2013). 2) GPL expects domestic growth to remain strong, at least until
3QFY15. 3) GPL plans to launch Crofelemer drug in FY15 in a few emerging markets, but
does not expect it to be a significant revenue driver initially. 4) Expects over 15% growth in
emerging markets and over 20% growth in API business annually. 5) Expects strong growth in
European business next year. 6) Capex is likely to be around Rs4bn in FY14E.

Glenmark Pharma — Book profits :: Business Line

Glenmark Pharmaceuticals - PAT tax-hit, outlook positive; Buy :: Anand Rathi Institutional Research

Glenmark Pharmaceuticals - PAT tax-hit, outlook positive; Buy

Key takeaways

Results below estimates. Glenmark Pharmaceuticals’ (Glenmark) revenues grew 19% yoy to `12.4bn, below our expected `13bn, due to lower sales in the US. EBITDA margin declined 110bps yoy, to 20%, owing to higher R&D spend versus our expected 20.5%. Owing to lower revenue and EBITDA margin, coupled with higher effective tax rate of 23.1%, adjusted PAT grew just 2.2% yoy to `1.3bn (versus our expected `1.6bn).

Revenue growth continues. Revenue growth was slightly less than estimated, chiefly because of just 13.9% yoy rise in the US generics and decline in revenue from EU specialty formulations. However, domestic formulations remained strong, with 17.4% yoy revenue growth, driven by focus on high growth segments like cardiac, respiratory and dermatology. RoW specialty formulations recorded 25% yoy growth, led by Ukraine, Africa and other emerging markets.

Change in our estimates. Considering the favourable currency environment and continued strong growth in domestic formulations, we raise our FY14 and FY15 revenue estimates 3.9% and 4%, respectively. We, however, reduce our PAT estimates by 0.8% for FY14 and 0.2% for FY15 to factor in higher R&D spend and effective tax rate.     

Our take. We believe the strong growth momentum would continue, led by the US generics, domestic formulations and recovery in RoW and Latam. We also expect the base business to register a strong 17.6% CAGR over FY13-15, and 21.8% in adjusted PAT (excl. out-licensing income).

We maintain Buy on the stock, with a revised target of `658 based on 18x FY15e earnings, `27 for the R&D pipeline and `12 for Para-IV products (earlier `602 based on 18x Sep’14e).  Risks. Currency fluctuations, regulatory hurdles.

Click here to access the report 

Thanks & Regards Anand Rathi Institutional Research

Glenmark Pharmaceuticals (GLEN.NS): 1Q Miss, Steady Growth + NCE Option = OW :Morgan Stanley Research

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).

Technicals: Essel Propack, Bajaj Electricals, BHEL, Ashok Leyland, Glenmark, ITC : Business Line

Glenmark, TP: INR617 Buy ::Motilal Oswal

Glenmark's 4QFY13 performance was above expectations. Key highlights:
 Glenmark's (GNP) net sales grew 25% YoY to INR13.35b (v/s est INR12.93b).
Sales growth was driven by strong growth in domestic formulations (up 32%
YoY) and US generics business (25% YoY, partly led by foreign currency). Sales
were above expectation despite absence of licensing income (est INR243m).
 EBITDA grew 44% YoY to INR2.69b (v/s est INR2.88b), with EBITDA margin
expanding 150bp YoY to 20.2% (v/s est 22.3%) on a low base of 4QFY12 (which
was impacted by adverse sales mix). Core EBITDA was up by 47.5% YoY to
INR2.4b v/s est of INR2.35b, with core EBITDA margin at 18.6% (v/s est 19%).
 Adj PAT stood at INR1.49b (v/s est INR1.47b), up 11.7% YoY. PAT growth is
lower than EBITDA due to a forex loss of INR150m (INR350m gain in 4QFY12),
but above our estimate due to a lower tax rate at 2.6% (v/s est 12%).
 GNP continues to show an improvement in working capital management,
with inventory days down 10 and payable days up 20 days. Cash conversion
cycle has reduced by 10 days, over and above a 45-day improvement in FY12.
Valuation and view: Post 4QFY13 results, we raise EPS estimates by 2%/4% to
reflect (1) healthy top line growth sustaining through FY15E and (2) lower tax
rate but partly offset by increased R&D expenses. We expect GNP to gradually
reduce its D/E from 0.9x in FY13 to ~0.5x by FY15E, with improvement in return
ratios. GNP has differentiated itself among Indian pharmaceutical companies
through its significant success in NCE research (resulting in licensing income of
USD205m till date). Given this success, company has been aggressive to add
new NCEs to its pipeline, which will exert pressure on its operations in shortto-
medium term as it will have to fund R&D expenses for these NCEs. The stock
trades at 19x FY14E and 15.7x FY15E EPS. Maintain Buy with a target price of
INR617 (18x FY15E EPS + INR15 DCF value for Crofelemer and Para-IV upsides).

Glenmark Pharma (Buying Range: |430-|410) • •Muhurat Picks - 2012 :: ICICI Direct

Glenmark Pharma (Buying Range: |430-|410)
• The company is the one of the few generic companies, which
enjoys a substantial foothold in therapies like Derma and oral
contraceptives in the US market, which has caused strong CAGR
of 21% between FY08 and FY12 in the US. We believe the growth
story will only get better on the back of robust pipeline of 81
ANDAs approved and 43 ANDAs pending for approval from
USFDA. The 43 pending applications include 19 are Para IV filings
• As per latest AIOCD data, Glenmark is the second largest player in
the dermatology space after GSK Pharma in the domestic market
with a market share of 11%. It also enjoys decent market share in
therapies like respiratory and cardiac. The company keeps on
introducing at least 20 new products and line extensions in the
domestic market to strengthen the market share. Sales in the
domestic market grew at a CAGR of 18% between FY08 and FY12
• We expect sales, EBITDA and profit to grow at a CAGR of 19%,
18% and 28%, respectively, between FY12 and FY14E. The
company is currently trading at ~21x FY13E EPS of | 20.7 and
~15x FY14E EPS of | 27.9

Glenmark Pharma: Buy :: Business Line

Glenmark Pharmaceuticals:Napo arbitration in favor of Glenmark : Reliance Sec

Napo arbitration in favor of Glenmark
Key points
 Event: Glenmark has received a favorable ruling regarding anti-diarrhea drug
Crofelemer against Napo Pharma (arbitration filed in December 2011) by an
international arbitrator. It has received exclusive rights to develop, commercialize
and distribute Crofelemer in 140 emerging countries for the treatment of diarrheal
diseases. The arbitrator has also ruled that Glenmark has 2 years to file for
regulatory approvals in 140 countries post the approval of Crofelemer in India.

Glenmark Pharmaceuticals: Crofelemer - limited near-term opportunity :: Kotak Sec, PDF link

Glenmark Pharmaceuticals: Crofelemer - limited near-term opportunity
` Arbitration panel rules in Glenmark's favor in Crofelemer litigation
` Crofelemer may have limited commercial opportunity; Revamilast in RA
remains the focus

Annual Report Analysis - Glenmark Pharmaceuticals :: Edelweiss PDF link

Glenmark Pharmaceuticals (Glenmark) FY12 annual report analysis highlights healthy cash flows supported by improved cash conversion cycle and translation loss adjustment. Adjusted for one-offs, EBITDA margin improved 400bps due to lower other expenses despite increase in raw material cost as a percentage of sales. Lower amortisation on IFRS transition and lower effective tax rate maintained PAT margin.

Technical QUERY CORNER -Opto Circuits, MCX, Rashtriya Chemicals, HDFC, Glenmark, Page Industries ::Business Line

I am a long-term investor, holding shares of Opto Circuits at Rs 250 and Multi Commodity Exchange of India (MCX) at Rs 1,280. Kindly advise the prospects and future growth of these shares.

V.Rajaiah

Opto Circuits India (Rs 154.4): The stock peaked out around your buy price at Rs 252 in September 2010. Since then, it has been on a long-term downtrend. In February 2012, the stock encountered resistance around Rs 220 and continued its long-term downtrend.

Medium-term trend is down for the stock since this February. As long as the stock trades above the key long-term support band between Rs 140 and Rs 150, long-term investors can hold the stock with stop at Rs 140. A fall below this band will reinforce the bearish momentum and pull the stock down to Rs 120 and then to Rs 100 in the forthcoming months.

An upward reversal from the aforesaid support range will lift the stock higher to Rs 175 levels and then to Rs 190. Only a strong rally above the Rs 210 and Rs 220 zone will alter the stock's downtrend and take it higher to Rs 260 in the long-term.

Glenmark Pharma :Strong quarter, but margins disappoint; we maintain a Buy:: Anand Rathi

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Glenmark reported better-than-estimated results in 3QFY12, led by
strong performances in the specialty and generics businesses and
licensing income of US$5m. However, the EBITDA margin in the base
business was 18% lower than estimated. We change our estimates to
factor in higher revenue from the US and semi-regulated markets, and
rising R&D expenditure. We maintain a Buy rating with a revised price
target of `376 (earlier `402).
 3QFY12 results. Revenue grew 37.3% yoy to `10.3bn vs our expectation
of `8.6bn, mainly led by strong growth in the US and semi-regulated
markets, and out-licensing income of US$5m. The base business
EBITDA margin declined 420bps yoy, to 18%, led by higher raw material
costs and R&D spend. Adjusted net profit grew 20.8% yoy, to `1.3bn, vs
our expectation of `1.1bn.
 Growth across segments. Segment-wise, specialty formulations grew
28.7% yoy, led by semi-regulated markets and Latin America, while
domestic formulations grew at a modest 11.3% yoy. The generics
segment grew a robust 45.3% yoy, led by strong 56.3% yoy growth in the
US and moderate growth in APIs.
 Revising estimates. We increase our revenue estimates for FY12-14, by
5-9%, to factor in higher licensing income, strong growth in US
formulations and the impact of currency fluctuations. However, we lower
our adjusted net profit estimates for FY13-14 by 2-4% due to rising R&D
spend that led to a lower EBITDA margin and higher interest cost.
 Valuation. We maintain a Buy rating with a revised price target of `376
based on 18x FY13e earnings (from `402 earlier). Of the `26 drop in
target price, `21 is due to the ongoing litigation pertaining to Crofelmer.
Risks: Regulatory hurdles and currency fluctuations.

Buy Glenmark Pharma ; Target : Rs 349 ::ICICI Securities

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F r e s h   m a r g i n   c o n c e r n s  a m i d   r o b u  s t   g r o w t h  …
Glenmark came out with a mixed set of numbers for Q3FY12. Revenues
were at | 1031.3 crore, higher than our expectation of | 906 crore, driven
by strong growth in the US and RoW markets. However, domestic
formulations grew by just 11% (our expectation 18%) on the back of
inventory rationalisation. Excluding the licensing income of ~| 24 crore,
the  base  business  grew  by  34.5%  YoY  to  |  1007  crore.  EBITDA  margins
stood at a mere 10% against our expectation of 15.5% due to higher
forex loss and R&D spend. The net profit was | 46.1 crore compared to
our expectation of | 80 crore. We are revising our target price downwards
by ~12 % based on revised FY13 numbers after considering some added
cost pressure and an unforeseen inventory rationalisation exercise in
branded formulations. We, however, maintain our BUY recommendation
as the company remains in a high growth trajectory.
ƒ Domestic formulations grow by only 11.3% YoY
The domestic formulation business grew only 11% YoY to | 254.7
crore owing to inventory rationalisation. Glenmark is planning to
reduce inventory in the channels, which would improve both
inventory days and receivable days. The management has indicated
that the inventory rationalisation would continue in Q4FY12 as well.
ƒ Like to like sales in US market grow by 38% YoY
The US formulation business grew by 56.3% YoY to | 319 crore on
the back of (i) recent product  launches including OCs and generic
Malarone tablets and (ii) favourable currency. Constant currency
growth during the quarter was 38% YoY. The company filed two
ANDAs with the USFDA.
V a l u a t i o n
We have revised our FY13E EPS target from | 23.3 to | 20.5 due to
margin pressure attributable to higher than estimated R&D spend and
possible consolidation of high margin domestic formulations business
owing to channel inventory rationalisation. Other growth drivers,
however, are expected to remain intact. We expect growth from other
geographies to keep up the momentum. We have assigned a target price
of | 349 (earlier | 396) based on 17x FY13E EPS of | 20.5. We maintain
BUY

Glenmark Pharmaceuticals: Q3FY12 – Impressive topline growth but forex losses put margins under pressure::GEPL

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Q3FY12 – Impressive topline growth but forex losses put margins under
pressure. Pain to stay for some time.
• Glenmark Pharmaceuticals Ltd. (Glenmark) reported an impressive 36% Y-o-Y growth in
topline at `10,313 mn in Q3FY12 against `7,585 mn in Q3FY11. This was led by robust growth
in Europe (48%), Latin America (48%) and Rest of the World (48%).
• EBITDA showed a 41% Y-o-Y decline to `1,029 mn in Q3FY12 against `1,741 mn in Q3FY11.
EBITDA margin declined drastically from 23% in Q3FY11 to 10% in Q3FY12 due to 49% Y-o-Y
rise in raw material cost, 45% Y-o-Y rise in staff cost and 78% Y-o-Y rise in other expenses.
Other expenses include MTM loss of `1,020 mn.
• Net profit declined 58% Y-o-Y to `461 mn against `1,096 mn in Q3FY11. This was due to MTM
losses of `1,020 mn on dollar denominated loans. Adjusting for the MTM losses, net profit
was 35% higher at `1,481 mn.
Result Highlights
Impressive sales growth across all geographies
Glenmark reported strong sales growth in almost all its geographies. The growth was quite
profound compared to the same in Q3FY11; Africa, Asia and CIS (48% in Q3FY12 vs 27% in
Q3FY11), Europe (48% vs 27%), Africa and Middle East (36% vs 36%). Glenmark’s market share in
Dermatology increased from 8.3% to 8.4%, in Cardiac from 2.4% to 2.5%, and in Respiratory from
1.2% to 2.7%.
MTM loss spoils the picture
Glenmark reported MTM loss of `1,020 mn for Q3FY12 due to dollar denominated loans. Excluding
the MTM loss, EBITDA was 18% higher at `2,049 mn with an EBITDA margin of 20% for Q3FY12
against reported margin of 10%. Net profit was 35% higher at `1,482 mn in Q2FY12 with a net
profit margin of 14.4% against reported margin of 4.5%.
Short term pain to remain due to changing revenue mix
Glenmark reported lower margins despite high topline growth due to several factors like
inventory rationalization in India (because of which its India growth reduced from 30% in Q3FY11
to 11% in Q3FY12), increasing contribution to sales from Latin America, Central Eastern Europe
and US generics (which are inherently low margin businesses), higher R&D spend and higher staff
cost. Management expects situation to normalize in a couple of quarters.
Valuation & viewpoint
At the CMP of `312, Glenmark is trading at 14x its FY13E consensus earnings estimate. The stock
is at a discount compared to its peers. However, this discount is expected to stay for at least a
couple of quarters after which the company is expected to see a boost in margins. Hence the
stock should be approached with caution for the immediate term.

Result Update: Petronet LNG Ltd, Divi's Lab, LIC Housing Finance, Allahabad Bank, United Phosphorus, NTPC, Glenmark Pharma: Emkay

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Result Update

Petronet LNG Ltd

Reco: ACCUMULATE

CMP: Rs 164

Target Price: Rs 180

Volume growth continue

·      Results were above our and street estimates at bottom line, mainly due to higher volume growth of 7.3% to 144.9tbtu during the quarter ·      EBIDTA margin declined marginally by 157bps YoY to 7.9% (-40.4bps QoQ), mainly on account of higher input cost and increase in other expenditure ·      Company is planning to setup 3rd LNG terminal at Gangavaram port, Andhra Pradesh, with the total capacity of 5mntpa, While Kochi terminal will start from end of CY12 ·      The recent news on proposed cap on gas marketing margin which is to be decided by PNGRB would keep the stock under pressure until any clarity emerges. Maintain accumulate with TP of Rs.180

Divi’s Lab

Reco: BUY

CMP: Rs 818

Target Price: Rs 927

Subdued quarter, Growth story remains intact - Maintain Buy

·      Divi’s Q3FY12 performance was below expectations with (a) Revenue at Rs4.2bn (up 33% YoY); (b) EBIDTA at Rs1.5bn (up 22% YoY)  & (c) PAT at Rs1.23bn (up 21% YoY) ·      Top-line growth was aided by INR depreciation, which contri-buted 13% to the top-line growth. Capacity utilization at Vizag plant remained flat QoQ, expected to scale up from Q1’13 ·      EBITDA margins at 36.2% were lower than expectations in spite of INR depreciation led by increase in expenses due to commissioning of Vizag plant & higher proportion of API sales ·      Growth story remains intact – Maintain Buy with a target price of Rs927 on the stock (20x FY13 EPS of Rs46.3)

LIC Housing Finance

Reco: HOLD

CMP: Rs 246

Target Price: Rs 250

Unfavorable base and shrinking spread take toll

·      LICHF’s Q3FY12 NII (Rs3.3bn) and APAT (Rs2.5bn) below our expectations. Lower than expected numbers driven by sharper 20bps contraction in NIMs ·      Individual disbursements at 8.4% yoy, due to unfavorable base effect. However, mgmt still confident of 20% growth in disbursement implying 27% yoy growth in Q4FY12 ·      NIMs at 2.3%, down 20bps qoq (est 12bps). Provisions write back (Rs780mn) helps as RPAT grows 45%. However, PCR dips back to 51%. ·      Intended QIP and teaser rate loan provisions, key upside risk to our numbers. Valuations have seen sharp run up to 2.4x/1.9x FY12E/FY13E ABV. Recommend Hold

Allahabad Bank

Reco: ACCUMULATE

CMP: Rs 156

Target Price: Rs 200

Strong performance; aggressive provs add comfort

·      ALBK results ahead of estimates with NII at Rs13.8bn (est Rs12.7bn). Net profit at Rs5.6bn (est Rs5.6bn) further aided by higher trading gains and lower tax rate of 8% ·      Strong NII growth (31.3%yoy) driven by stable NIMs vs our exp of 20bps dip. Advances grew 5% qoq in line with expectations ·      Slippages at Rs5.9bn vs our est of Rs5.5bn. However, fresh restructuring of Rs10.5bn was a –ve surprise. Net stressed asset stand at 4.8% of advances vs 3.8% in Q2FY12 ·      Upgraded FY12E/FY13E numbers by 17.7%/12.2 for largely lower tax rate. Aggressive provisioning policy provides comfort. Remains our top pick amongst mid-size PSU banks

United Phosphorus

Reco: BUY

CMP: Rs 144

Target Price: Rs 200

Bottomline disappoints, downgrade estimates

·      Q3FY12 revenues / EBITDA were above est driven by currency impact however higher tax outgo squeezed APAT at Rs 1.15bn,4% yoy, below est of Rs 1.5bn ·      58%yoy growth in sales is primarily driven by recent acquisitions in Brazil (~25%) and exchange fluctuation (19%) while organic volume growth remains muted at ~6%  ·      Despite higher revenue growth, EBITDA margins remain subdued at 18.1%. Higher tax rates at 33% and losses from Brazilian JV (SIPchem) suppressed PAT growth at mere 4% ·      Downgrade FY12/13 est by 10%/7% to Rs 16 / 19.9 and subsequently downgrade price target to Rs 200 (10xFY13 EPS), however maintain BUY due to attractive valuations

NTPC

Reco: BUY

CMP: Rs 172

Target Price: Rs 204

90%+ PAF structurally coming down; maintain Buy

·      3Q12 PAT of Rs21.3bn is below est. due to higher R&M expenses & under recovery on water charges. Adjusted net profit stood at  Rs21.7bn (assuming PY sales as recurring) ·      Has commissioned 1320MW (Sipat) and commercialized 1,160MW in YTD12. Mgmt has retained its capacity addition target ·      Highlights - (1) PAF of coal plants low at 85.3% and 86.2% for 3Q12 and 9M12 period and (2) Revised PAF and COD assumption, FY12E/FY13E EPS reduced by 3.4%/3.9% ·      Valuations still remain reasonable. Positives to continue (1) COD of another 1160MW, (2) FY12/13 grossing & (3) acquiring distressed plants in medium term. Maintain Buy;

Glenmark Pharma

Reco: HOLD

CMP: Rs 312

Target Price: Rs 360

Margins under pressure – Downgrade to Hold

·      Q3FY12 Results - Revenues at Rs10.3bn (up 38%YoY), b) Adj. EBITDA at Rs1.8bn (up 35% YoY), and c) APAT at Rs1.33bn (up 41% YoY) ·      Revenue growth was driven by 11% in India, 56% in US, 58% in Europe and 48% in Latam ·      Despite INR dep. by 13%, gross margins declined 300bps YoY & 120bps QoQ due to higher growth in Latam, Europe, US where margins are lower and lower growth in high margin India business ·      On account of near term growth pressure in India business & margin pressure overall, we downgrade the stock to Hold with a TP of Rs360 (15x FY13 Base EPS of Rs21+ Adj NPV of Rs47)