Published on 14/12/2019 10:29:59 AM | Source: Geojit Financial Services Ltd

Hold Glenmark Pharmaceuticals Ltd For Target Rs.366 - Geojit Financial

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Solid topline with pressure on margins

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.

* Topline grew 8.8% YoY to Rs. 2,764cr in Q2FY20, mainly fueled by India operations which grew 15.2% YoY to Rs. 896cr, beating street estimates by 5.1%.

* EBITDA increased 2.4% YoY to Rs. 450cr, while margin declined 100bps to 16.3% due by higher employee costs and R&D expenses. Adj. PAT came in at Rs. 256cr, up 7.5% YoY, beating street estimates by 44.5%.

* We estimate revenue to grow at CAGR of ~9% over FY19-21E backed by robust performance of India business.

* We revise our EPS estimate by +18% due to performance uptick in Q2FY20 and upgrade our rating to HOLD with a revised target price of Rs. 366.


Healthy Topline

Glenmark registered a strong revenue growth of 8.8% YoY to Rs. 2,764cr, mainly driven by India operations which grew 15.2% YoY to Rs. 896cr (vs. IPM growth of 12.6% YoY), along with an increased market share of 4.6% in the Cardiac segment (vs. 4.4% in Q2FY19) and 1.7% in Anti diabetic segment (vs. 1.6% in Q2FY19). This was supported by Europe business (Rs. 285cr, +9.3% YoY) and RoW business (Rs. 349cr, +14.3%), partially slowed down by US business which grew 4.6% YoY to Rs. 848cr. Latin America business bounced back with a strong 23.1% YoY growth to reach at Rs. 121cr, driven by the new product launches, especially the one with Novartis. Glenmark life sciences, which primarily includes manufacturing and marketing of API products across all major markets globally grew 7.4% YoY to Rs. 270cr in Q2FY20 led by more than 20% growth in both domestic and ROW regions.


Declining margins

EBITDA margin declined 100bps YoY to 16.3% mainly due to increase in employee expenses on account of annual bonus & incentives pay out and higher R&D expenses. The disproportionate rise in employee costs is a seasonal trend as the company disburses increments & bonuses in Q2. Adj. Net profit improved 7.5% YoY to Rs. 256cr, while Adj. EPS increased to Rs. 9.1 in Q2FY20 (+7.5% vs. Rs. 8.4 in Q2FY19).


Key concall highlights

* The company received 9 ANDA approvals including 8 final approvals and 1 tentative approval.

* R&D expenditure stood at Rs. 355cr of which Rs. 194cr was spent on NCE molecules through its subsidiary ICHNOS sciences.

* The company has maintained a capex guidance of Rs. 800cr for FY20E, while capex of Rs. 500cr has already been incurred in the first half of FY20E.



The company has reported decent performance amid challenging global macro environment. Outlook remains weak for US and other geographies. However India business continues to outperform industry growth, which will be the key catalyst for revenue growth. Hence, we upgrade our rating on the stock to HOLD with a revised target price of Rs. 366 based on 11x FY21E adj. EPS.


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