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Convincing quarter; Promising outlook

Glenmark Pharma Ltd (GNP) is an India-based pharmaceutical company with commercial presence in more than 80 countries across the globe. GNP is primarily focused on generics, specialty and OTC businesses. The company has strong regional/country-specific presence in diabetes, cardiovascular and oral contraceptives.

* Glenmark registered a 3.3% YoY growth in revenue to Rs. 2,860cr in Q4FY21, backed by robust India, US, Europe and API segments, partially offset by de-growth in Latin America.

* EBITDA grew 12.4% YoY, with margin expanding by 130bps to 18.5%, on lower costs and improved sales. Adj. PAT rose 24.8% YoY to Rs. 234cr, further aided by lower depreciation and interest costs.

* Given strong performance across regions/segments, successful drug launches and controlled debt levels, we reiterate our BUY rating on the stock with a rolled-forward target price of Rs. 717 based on 17x FY23E EPS.

Revenue growth led by India, US and API segments

Consolidated revenue for Q4FY21 rose 3.3% YoY to Rs. 2,860cr (+2.6% QoQ) upon strengthened core therapeutic position (Cardiac share: 4.74%; Anti-diabetic share: 1.85%) and strong consumer care growth (+30% in Candid powder, +25% in LaShield and Scalpe) in India business at Rs. 824cr (+7.7% YoY). Additionally, robust API business at Rs. 331cr (+26.7% YoY) coupled with higher contribution from the US (+5.2% YoY to Rs. 801cr) and Europe (+2.6% YoY to Rs. 422cr) benefitted by new launches contributed for this growth. This was partially offset by 26.6% de-growth in Latin America to Rs. 130cr primarily impacted by a decline in Brazilian sales, while ROW remained largely flat at Rs. 334cr (-0.7% YoY).

Efficiency maintained with improved margins

EBITDA rose 12.4% YoY to Rs. 523cr with 130bps YoY expansion in EBITDA margin to 18.5%, primarily aided by higher revenue and lower operating costs. Other expenses saw an uptick of 7.4% YoY to Rs. 861cr owing to high freight costs (Rs. 30cr) amid increasing inventories coupled with soaring CSR spends (Rs. 10-15cr) and Forex loss. Adj. PAT improved 24.8% YoY to Rs. 234cr, further helped by lower D&A expenses (- 12.0% YoY) and interest costs (-15.4% YoY).

Key concall highlights

* Capex guided at Rs. 650-700cr for FY22 and EBITDA margin in 19-20% range.

* ETR guidance is at 29%-30% for FY22, as MAT Credit is being utilized.

* Q4FY21 R&D spends was at Rs. 304cr (~10.6% of net sales), which included spending on ICHNOS Sciences of Rs. 188cr (Rs. 757cr for FY21). R&D spends to be capped at 10%-11% for FY22.

* Net debt reduced to Rs. 3,549cr (vs. Rs. 3,758cr in FY20). Company intends to reduce debt further in upcoming period.

* India Formulation business is ranked 14th and its market share improved to 2.32% (vs. 2.20% last year).

Valuation

The company’s outlook remains promising with topline to grow amidst strong domestic performance and new launches. Margins will expand on the back of cost rationalization, subdued R&D spend and robust pipeline. Hence, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 717 based on 17x FY23E EPS.

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