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Awaiting new growth trajectory

Glenmark (GNP) beat revenue/EBITDA forecast by 2%/1% entirely due to covid-led growth in RoW; meanwhile India, the EU and the US undershot expectations. EBITDA margin at 18.8% was in line as gross margin pressures were set off by lower opex.

Glenmark is yet to fire on all cylinders—while its domestic and API businesses are showing steady growth, the US is facing the brunt of price pressure and EU launches are yet to gain traction. We await the promised Ichnos fund-raise, partnering of NCE products and Ryaltris rollout. We are keeping our numbers largely unchanged considering management guidance is along our expectations. Maintain ‘HOLD’ with an unchanged target price of INR570.

Q2FY22 takeaways: Soft revenue, in-line EBITDA margin

Revenue stood at INR31.5bn, +7% YoY with RoW at INR6.5bn, +71% YoY driven by covid sales. US at INR7.5bn declined 4% QoQ impacted by price pressure while India reported 8% YoY decline due to Fabiflu in base; excluding this, growth was in midteens, in our view. Gross margin improved QoQ but was ~150bps lower than normal as it was impacted by covid sales in RoW and increasing input costs. Opex control ensured EBITDA margins were in line with expectations at 18.8%. Net debt at INR21.6bn versus INR35.5bn in Mar-21 post-GLS IPO proceeds.

Value unlocking awaited

Glenmark’s two-pronged growth strategy is for its NCE and specialty business to bolster the core generic business. However even in its core businesses, Glenmark is grappling with price erosion in the US such that theophylline, gBrovana launches were not able to completely offset price pressure. Likewise, the EU growth has been muted despite respiratory launches. We await partnering of products in Ichnos. Before we turn positive, we await for signs of better execution in the form of gSpiriva and Ryaltris ramp-up in the EU, Ryaltris US approval and launch, and fund-raise in Ichnos. Thus, while there is plenty of potential, we await some of these triggers to play out before turning more positive.

Outlook and valuation: Triggers awaited; maintain ‘HOLD’

Although GNP is trading at a discount to peers, concerns linger around Ichnos fundraise and growth in core businesses, which that could restrict re-rating in the near term. We maintain ‘HOLD/SN’ with an unchanged TP of INR570 based on 17x Mar23E EPS.

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