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Glenmark Pharmaceuticals (GLEN.BO)
Strong Growth Leads to PAT Beat
Strong Growth Leads to PAT Beat — Core biz PAT beat our estimate by c10% on
robust top-line growth and improving business mix (US & India). Growth trajectory
appears strong with US & India, in particular, doing well and margins improved.
Sustaining this momentum & further B/S improvement could improve conviction among
investors & drive a rerating. Positive newsflow around the innovative R&D pipeline
should help sustain current levels, post the recent run up. Maintain Buy.
US, India Drive Top Line — Top line (excl licensing income) grew +27% YoY –
Specialty (+29% YoY) and Generics (+28% YoY) did well. Specialty was driven by India
(+20%YoY), SRM (+43%YoY) & LatAm (+61%YoY). Generics driven by US biz – grew
both YoY (+37%) & QoQ (+12%) primarily due to ramp up in products launched during
FY11 (19 launches). EU generics grew off a low base but API remained muted.
Business Mix Helps Improve Margin — Robust growth in India & US (niche prods
share now higher) led to a 153bps decline in RM/sales, resulting in core biz EBITDA
margin improvement (+53bps YoY). This is despite a sharp increase in other
expenses/sales (+93 bps YoY). Higher interest (expected to normalize), depreciation
and a tax rate (+673 bps YoY) limited recurring PAT growth (+22% YoY). Reported PAT
was higher at Rs2.1bn - Receipt of Rs1.1bn from Sanofi for the GBR-500 deal.
Key Catalysts — a) Launch of Malarone (US$60m Brand) and Cutivate (US$50m
Brand) under settlement(s) - expected to be limited competition oppys; b) Positive
news flow on Crofelemer – likely NDA filing by Salix; c) R&D – Milestone payments
from the two licensing deals; any fresh licensing deals for any other molecules.
Earning Call Takeaways — 1) R&D cost for 1QFY12: Rs400m, full-year guidance:
Rs2bn; 2) Capex for FY12/FY13 at Rs2.5bn each; 3) No further update on Tarka; 4)
Salix expected to launch Crofelemer in US during CY12; 5) Net Debt at Rs18bn,
Debtor days:125, Payable days:75; 6) File 15-20 ANDAs, 3-5 OC approvals in FY12.
Revising Estimates — we raise FY12/13 EPS estimates by 50%
Glenmark Pharmaceuticals
Company description
Glenmark Pharmaceuticals is a fully integrated research-based pharmaceutical
company, with a business model spanning drug discovery research, APIs and
formulations in the domestic and international markets. It operates in more than 65
countries, including the regulated markets of the US and Europe, with around 60%
of its revenues coming from overseas markets. The company came into the
limelight in September 2004 after it licensed out the US market rights of its first new
chemical entity (NCE), GRC-3886, to Forest Laboratories and has successfully outlicensed several research molecules over the last few years
Investment strategy
We have a Buy/Medium Risk (1M) rating on Glenmark. At current levels, the stock
trades at reasonable valuations for the base business and does not appear to build
in any value for its R&D pipeline. Meanwhile, there are signs of a turnaround in the
company's core (non R&D) business and we believe that the worst may be behind
us. We now have more comfort on the sustainability of positive trends in the core
biz, with Glenmark being able to bring down debtor days, generate cash & pay
down debt. We believe the recent underperformance in the stock and the signs of a
recovery in Glenmark's core business have improved the risk reward in the stock for
investors.
Valuation
Our target price for Glenmark Pharmaceuticals of Rs430 is based on 16x Sep 12E
EPS for the base business. We are comfortable with the sustainability of the positive
trends seen in Glenmark’s key markets. This, along with the improvement in
balance sheet (lower leverage, tighter working capital) lead us to use a multiple of
16x – a 10-20% discount (to factor in the higher risk / uncertainty in the biz and
weaker balance sheet) to what we use for sector leaders such as Sun, Cipla, Dr
Reddy’s & Lupin – to value the base biz. At 16x Sep 12E EPS we arrive at a value
of Rs332/sh for the base biz. Our TP also includes: a) Rs 35/sh for Glenmark's R&D
deal with Sanofi for GBR-500; b) Rs27/sh for Glenmark's R&D deal with Sanofi for
GRC-15300; c) Rs19/sh for Crofelemer launch; d) Rs17/sh for its Para IV pipeline.
Cumulatively, we arrive at a TP of Rs430/sh.
Risks
We rate Glenmark Medium Risk as against Low Risk suggested by our quant-based
risk-rating system, as we do not see any major upside on the R&D front in the near
to medium term. Downside risks to our target price include: (1) Continued delay in
product approvals would impact sales and profitability; (2) Adverse verdict in the
ongoing Tarka litigation with GSK could lead to significant damages; and (3)
Growing competition, rapid price erosion, and fragmented market share are risks
inherent to the generics business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Glenmark Pharmaceuticals (GLEN.BO)
Strong Growth Leads to PAT Beat
Strong Growth Leads to PAT Beat — Core biz PAT beat our estimate by c10% on
robust top-line growth and improving business mix (US & India). Growth trajectory
appears strong with US & India, in particular, doing well and margins improved.
Sustaining this momentum & further B/S improvement could improve conviction among
investors & drive a rerating. Positive newsflow around the innovative R&D pipeline
should help sustain current levels, post the recent run up. Maintain Buy.
US, India Drive Top Line — Top line (excl licensing income) grew +27% YoY –
Specialty (+29% YoY) and Generics (+28% YoY) did well. Specialty was driven by India
(+20%YoY), SRM (+43%YoY) & LatAm (+61%YoY). Generics driven by US biz – grew
both YoY (+37%) & QoQ (+12%) primarily due to ramp up in products launched during
FY11 (19 launches). EU generics grew off a low base but API remained muted.
Business Mix Helps Improve Margin — Robust growth in India & US (niche prods
share now higher) led to a 153bps decline in RM/sales, resulting in core biz EBITDA
margin improvement (+53bps YoY). This is despite a sharp increase in other
expenses/sales (+93 bps YoY). Higher interest (expected to normalize), depreciation
and a tax rate (+673 bps YoY) limited recurring PAT growth (+22% YoY). Reported PAT
was higher at Rs2.1bn - Receipt of Rs1.1bn from Sanofi for the GBR-500 deal.
Key Catalysts — a) Launch of Malarone (US$60m Brand) and Cutivate (US$50m
Brand) under settlement(s) - expected to be limited competition oppys; b) Positive
news flow on Crofelemer – likely NDA filing by Salix; c) R&D – Milestone payments
from the two licensing deals; any fresh licensing deals for any other molecules.
Earning Call Takeaways — 1) R&D cost for 1QFY12: Rs400m, full-year guidance:
Rs2bn; 2) Capex for FY12/FY13 at Rs2.5bn each; 3) No further update on Tarka; 4)
Salix expected to launch Crofelemer in US during CY12; 5) Net Debt at Rs18bn,
Debtor days:125, Payable days:75; 6) File 15-20 ANDAs, 3-5 OC approvals in FY12.
Revising Estimates — we raise FY12/13 EPS estimates by 50%
Glenmark Pharmaceuticals
Company description
Glenmark Pharmaceuticals is a fully integrated research-based pharmaceutical
company, with a business model spanning drug discovery research, APIs and
formulations in the domestic and international markets. It operates in more than 65
countries, including the regulated markets of the US and Europe, with around 60%
of its revenues coming from overseas markets. The company came into the
limelight in September 2004 after it licensed out the US market rights of its first new
chemical entity (NCE), GRC-3886, to Forest Laboratories and has successfully outlicensed several research molecules over the last few years
Investment strategy
We have a Buy/Medium Risk (1M) rating on Glenmark. At current levels, the stock
trades at reasonable valuations for the base business and does not appear to build
in any value for its R&D pipeline. Meanwhile, there are signs of a turnaround in the
company's core (non R&D) business and we believe that the worst may be behind
us. We now have more comfort on the sustainability of positive trends in the core
biz, with Glenmark being able to bring down debtor days, generate cash & pay
down debt. We believe the recent underperformance in the stock and the signs of a
recovery in Glenmark's core business have improved the risk reward in the stock for
investors.
Valuation
Our target price for Glenmark Pharmaceuticals of Rs430 is based on 16x Sep 12E
EPS for the base business. We are comfortable with the sustainability of the positive
trends seen in Glenmark’s key markets. This, along with the improvement in
balance sheet (lower leverage, tighter working capital) lead us to use a multiple of
16x – a 10-20% discount (to factor in the higher risk / uncertainty in the biz and
weaker balance sheet) to what we use for sector leaders such as Sun, Cipla, Dr
Reddy’s & Lupin – to value the base biz. At 16x Sep 12E EPS we arrive at a value
of Rs332/sh for the base biz. Our TP also includes: a) Rs 35/sh for Glenmark's R&D
deal with Sanofi for GBR-500; b) Rs27/sh for Glenmark's R&D deal with Sanofi for
GRC-15300; c) Rs19/sh for Crofelemer launch; d) Rs17/sh for its Para IV pipeline.
Cumulatively, we arrive at a TP of Rs430/sh.
Risks
We rate Glenmark Medium Risk as against Low Risk suggested by our quant-based
risk-rating system, as we do not see any major upside on the R&D front in the near
to medium term. Downside risks to our target price include: (1) Continued delay in
product approvals would impact sales and profitability; (2) Adverse verdict in the
ongoing Tarka litigation with GSK could lead to significant damages; and (3)
Growing competition, rapid price erosion, and fragmented market share are risks
inherent to the generics business.
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