Hold Glenmark Pharmaceuticals Ltd For Target Rs.580 - ICICI Direct
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Steady numbers; ex-Covid traction key for future…
About the stock: Glenmark’s business is separated into three entities –
* Glenmark Pharmaceuticals for building a global generic, specialty and OTC business in therapy areas of dermatology, respiratory, oncology among others
* Glenmark Life Sciences for manufacturing and marketing APIs
* Innovation new company (ICHNOS) to focus on discovery and development of novel, first‐in‐class treatments in the therapeutic areas of immunology, oncology and pain encompassing both NBEs as well as NCEs
Q2FY22 Results: Glenmark reported mixed Q2FY22 results.
* Sales were up 6.6% YoY to | 3147.4 crore
* EBITDA was at | 590.2 crore, up 6.8% YoY with margins at 18.8%
* Consequent adjusted PAT was at | 257.7 crore (up 11.6% YoY)
What should investors do? Glenmark’s share price has de-grown by ~0.7x over the past five years (from ~| 856 in July 2016 to ~| 580 levels in November 2021).
* Rating changed from BUY to HOLD amid lower EBITDA guidance and persisting US base business pressure. Ex-Covid future launches to hold key
Target Price and Valuation: We value Glenmark at | 580 based on SOTP valuation
Key triggers for future price performance:
* In the US, traction from the newly commissioned US based Monroe facility will be the key determinant besides sustained product launches
* Traction for Ryaltris in global markets along with the launch in the US
* In India, it is the market leader in dermatology and improving its presence in respiratory, CVS, anti-infectives and anti-diabetics, in particular. It has also forayed into consumer health segment focusing on Rx-OTC switch products (~| 150 crore) led by two brands, Candid and Scalpe+
* Progress on the margins front amid cost rationalisation measures and decline in R&D expenses as percentage of sales
Alternate Stock Idea: Apart from Glenmark, in healthcare coverage we like Ajanta.
* Ajanta Pharma is a focused player in branded, which constitutes ~70% of overall sales that are spread across geographies including India. Focus is on launching maximum number of first time launches with new drug delivery system (NDDS)
* BUY with a target price of | 2500
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