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UBS Investment Research
Glenmark Pharmaceuticals
Q 1FY12: Good all round performance
Event: Q1FY12 results ahead of UBS-e; Maintaining guidance
Co. reported sales of Rs 7.57bn (excl. outlicensing income) ahead of UBS-e of Rs
7.2bn. EBITDA margins were significantly ahead of est. at 24.5% (UBS-e: 20.5%)
helped by decline of 170bps YoY in raw material cost (as %age of sales). PAT at
Rs 2.1bn was ahead of UBS-e of Rs 1.7bn. The recent payment of US$15mn for
Crofelemer manufacturing facility by Salix will be booked directly as a current
liability in balance sheet. Mgmt. expects FY12 R&D expense at Rs 2bn.
Impact: Strong revenue momentum, maintain estimates
Co. has delivered strong revenue momentum across all key markets India
(+20%YoY), SRM (43%YoY), Latam (62%YoY) and strong 12%QoQ growth in
the US helped by new launches. In US, the co. has not yet launched the 4 products
it received approval for last qtr. Co. has started seeing some pick up in the O.C.
business almost 8-9 mths after the first product launch. We believe there could be
upside to our FY12 est. if co. can sustain the current momentum.
Action: Maintain Buy, recent milestone payments to help in debt reduction
The completion of Phase I trials by GRC15300 has triggered a small milestone
from Sanofi which will come in Q3FY12. Co. will use the cash from milestone
payments and reduction in working capital to reduce its debt levels to Rs 15bn by
year end vs Rs 18.3bn at end of Q1FY12.
Valuation: Maintain Buy, PT Rs 380
We derive our 12mth price target using DCF-based methodology and explicitly
forecast long term valuation drivers using UBS’s VCAM tool with WACC of 11%.
Glenmark Pharmaceuticals
Glenmark Pharmaceuticals (Glenmark), incorporated in 1977, is focused on the
manufacture and global marketing of finished dosages and API. Glenmark is
among few Indian companies investing in new drug discovery research.
Melogliptin, a DPP IV inhibitor has completed Phase IIb trials. Glenmark's
revenue in FY10 was Rs23.9bn. The global API business contributed 11% of
sales. It main markets are in India, the US and Latin America. The company is
increasing its presence in EU and semi-regulated markets.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
competition from rival drug therapies, litigation (including the appeal process),
accounting/disclosure, and product pricing risk from generics competition.
Pricing pressure in the US market because of increased competition may
continue in 2007. Glenmark is increasing its focus on the US business. Risks
relating to the generic pharma sector in US become increasingly applicable now.
Continued rupee appreciation is likely to put further pressure on operating
margins going forward. Glenmark has outlicensed 1 NCE molecule on which it
will get milestone payments as well as royalties in case of a successful launch.
Failure of one or more of these molecules represents a potential risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Glenmark Pharmaceuticals
Q 1FY12: Good all round performance
Event: Q1FY12 results ahead of UBS-e; Maintaining guidance
Co. reported sales of Rs 7.57bn (excl. outlicensing income) ahead of UBS-e of Rs
7.2bn. EBITDA margins were significantly ahead of est. at 24.5% (UBS-e: 20.5%)
helped by decline of 170bps YoY in raw material cost (as %age of sales). PAT at
Rs 2.1bn was ahead of UBS-e of Rs 1.7bn. The recent payment of US$15mn for
Crofelemer manufacturing facility by Salix will be booked directly as a current
liability in balance sheet. Mgmt. expects FY12 R&D expense at Rs 2bn.
Impact: Strong revenue momentum, maintain estimates
Co. has delivered strong revenue momentum across all key markets India
(+20%YoY), SRM (43%YoY), Latam (62%YoY) and strong 12%QoQ growth in
the US helped by new launches. In US, the co. has not yet launched the 4 products
it received approval for last qtr. Co. has started seeing some pick up in the O.C.
business almost 8-9 mths after the first product launch. We believe there could be
upside to our FY12 est. if co. can sustain the current momentum.
Action: Maintain Buy, recent milestone payments to help in debt reduction
The completion of Phase I trials by GRC15300 has triggered a small milestone
from Sanofi which will come in Q3FY12. Co. will use the cash from milestone
payments and reduction in working capital to reduce its debt levels to Rs 15bn by
year end vs Rs 18.3bn at end of Q1FY12.
Valuation: Maintain Buy, PT Rs 380
We derive our 12mth price target using DCF-based methodology and explicitly
forecast long term valuation drivers using UBS’s VCAM tool with WACC of 11%.
Glenmark Pharmaceuticals
Glenmark Pharmaceuticals (Glenmark), incorporated in 1977, is focused on the
manufacture and global marketing of finished dosages and API. Glenmark is
among few Indian companies investing in new drug discovery research.
Melogliptin, a DPP IV inhibitor has completed Phase IIb trials. Glenmark's
revenue in FY10 was Rs23.9bn. The global API business contributed 11% of
sales. It main markets are in India, the US and Latin America. The company is
increasing its presence in EU and semi-regulated markets.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
competition from rival drug therapies, litigation (including the appeal process),
accounting/disclosure, and product pricing risk from generics competition.
Pricing pressure in the US market because of increased competition may
continue in 2007. Glenmark is increasing its focus on the US business. Risks
relating to the generic pharma sector in US become increasingly applicable now.
Continued rupee appreciation is likely to put further pressure on operating
margins going forward. Glenmark has outlicensed 1 NCE molecule on which it
will get milestone payments as well as royalties in case of a successful launch.
Failure of one or more of these molecules represents a potential risk.
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