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Glenmark------------------------------------------------------------------------ Maintain OUTPERFORM
More quarters like 1Q12 could lead to rerating
● The Jun-11 quarter was just the opposite of the Mar-11 quarter.
Sales growth was strong across divisions, with margins higher
than Glenmark’s guidance and receivable days declining sharply.
According to Glenmark, there was no addition to intangibles.
● Sustenance of high growth and margin expansion is most crucial.
US sales reached a new base of US$56 mn (up +US$8 mn QoQ)
and should only inch upwards from here. However, given the
pricing pressure in India currently, we are not too sure about the
sustenance of India growth at 50%, which is above the industry
average. Growth in LatAm and RoW markets should remain high.
● Despite a decline in receivable days to 129 days in Jun-11 (from
140 days in Mar-11), working capital increased by four days as
inventory days increased while payable days declined (Figure 2).
Glenmark is using milestone and upfront payments to reduce its
net debt (which declined by US$18.5 mn to US$407 mn QoQ).
● The stock is up 25% post its deal with Sanofi in May-11. It could
rerate more on: (1) further balance sheet improvement, (2)
pipeline roll out in the US, (3) another outlicensing deal and (4)
launch of Crofemeler.
Strong sales growth across divisions
1Q12 results were better than expected on both sales growth and margins.
Sales beat our estimates by 6% while EBITDA margins beat us by 230 bp
(Fig 3) on stronger mix of higher sales from the US, CIS and India.
● US sales increased by US$8mn QoQ and benefitted from a ramp
up in products launched in late FY11. The current base of US$56
mn/quarter does not have any one-offs and should rise further as
more products are launched during the year.
● India sales grew by 20% with Dermatology, Respiratory and
Cardiology recording 20%-plus growth, while anti-infectives grew
by single digits. The secondary sales growth reported by IMS for
Glenmark is 19%, while according to AIOCD, the growth was
slower at ~12%. The FY12 guidance for India growth is 18-20%.
● LatAm sales beat our estimates by 17%. Around 78% of sales are
from Brazil with 120 sales representatives. At US$52 mn
annualised sales, LatAm should be very close to breakeven.
● ROW sales (Russia, Africa and Asia) grew strongly at 43% YoY
and management expects 30% Russian revenue growth to US$50
mn in FY12. Derma and Respiratory portfolio of Glenmark is not
under the essential drug list in the Russian market.
Margins better than FY12 guidance
EBITDA margin at 23.5% was higher than the FY12 guidance of 22-
23%. However, R&D spend for the quarter was 20% of FY12 target of
Rs2 bn. Adjusted margin for normalised R&D spend stood at 22.1%
Receivable days down, but WC cycle up by 4 days
● Receivable days fell sharply from 140 days in Mar-11 to 129 days
in Jun-11; management targets 125 days for FY12. However, an
increase in inventory days and lower payable days implied that
overall working capital cycle increased by 4 days.
● Glenmark claims that there was no addition to intangibles in 1Q12.
● US$25 mn licensing income from Sanofi was used to reduce the
debt (down by Rs830 mn to Rs18.3 bn). The company has further
swapped short-term debt with a foreign currency term loan.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Glenmark------------------------------------------------------------------------ Maintain OUTPERFORM
More quarters like 1Q12 could lead to rerating
● The Jun-11 quarter was just the opposite of the Mar-11 quarter.
Sales growth was strong across divisions, with margins higher
than Glenmark’s guidance and receivable days declining sharply.
According to Glenmark, there was no addition to intangibles.
● Sustenance of high growth and margin expansion is most crucial.
US sales reached a new base of US$56 mn (up +US$8 mn QoQ)
and should only inch upwards from here. However, given the
pricing pressure in India currently, we are not too sure about the
sustenance of India growth at 50%, which is above the industry
average. Growth in LatAm and RoW markets should remain high.
● Despite a decline in receivable days to 129 days in Jun-11 (from
140 days in Mar-11), working capital increased by four days as
inventory days increased while payable days declined (Figure 2).
Glenmark is using milestone and upfront payments to reduce its
net debt (which declined by US$18.5 mn to US$407 mn QoQ).
● The stock is up 25% post its deal with Sanofi in May-11. It could
rerate more on: (1) further balance sheet improvement, (2)
pipeline roll out in the US, (3) another outlicensing deal and (4)
launch of Crofemeler.
Strong sales growth across divisions
1Q12 results were better than expected on both sales growth and margins.
Sales beat our estimates by 6% while EBITDA margins beat us by 230 bp
(Fig 3) on stronger mix of higher sales from the US, CIS and India.
● US sales increased by US$8mn QoQ and benefitted from a ramp
up in products launched in late FY11. The current base of US$56
mn/quarter does not have any one-offs and should rise further as
more products are launched during the year.
● India sales grew by 20% with Dermatology, Respiratory and
Cardiology recording 20%-plus growth, while anti-infectives grew
by single digits. The secondary sales growth reported by IMS for
Glenmark is 19%, while according to AIOCD, the growth was
slower at ~12%. The FY12 guidance for India growth is 18-20%.
● LatAm sales beat our estimates by 17%. Around 78% of sales are
from Brazil with 120 sales representatives. At US$52 mn
annualised sales, LatAm should be very close to breakeven.
● ROW sales (Russia, Africa and Asia) grew strongly at 43% YoY
and management expects 30% Russian revenue growth to US$50
mn in FY12. Derma and Respiratory portfolio of Glenmark is not
under the essential drug list in the Russian market.
Margins better than FY12 guidance
EBITDA margin at 23.5% was higher than the FY12 guidance of 22-
23%. However, R&D spend for the quarter was 20% of FY12 target of
Rs2 bn. Adjusted margin for normalised R&D spend stood at 22.1%
Receivable days down, but WC cycle up by 4 days
● Receivable days fell sharply from 140 days in Mar-11 to 129 days
in Jun-11; management targets 125 days for FY12. However, an
increase in inventory days and lower payable days implied that
overall working capital cycle increased by 4 days.
● Glenmark claims that there was no addition to intangibles in 1Q12.
● US$25 mn licensing income from Sanofi was used to reduce the
debt (down by Rs830 mn to Rs18.3 bn). The company has further
swapped short-term debt with a foreign currency term loan.
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