Buy Glenmark Pharma Ltd For Target Rs.1,850 By Motilal Oswal Financial Services Ltd
Operationally in-line 1Q; DF/EU drive earnings
Growth levers across key markets
* Glenmark Pharma (GNP) delivered an in-line operating performance in 1QFY25. It witnessed robust traction in the domestic formulation (DF) and Europe businesses. However, this was partly offset by muted show in US/ROW markets.
* We raise our earnings estimates by 11%/17% for FY25/FY26, factoring in a) the niche product pipeline in respiratory for US generics, b) outperformance vs. the industry in DF segment, and c) reduced spending on innovative R&D.
* We value GNP at 26x 12M forward earnings (from 21x earlier), considering the significant financial deleverage, superior execution in DF and Europe segments, and the scale-up in the US generics segment, driven by limited competition products. Accordingly, we arrive at a TP of INR1,850.
* From adj. PAT of a meagre INR700m in FY24, we expect GNP to deliver PAT of INR16.7b in FY26. GNP has restructured its business model by focusing on key markets – India, US, EU and ROW, b) hiving off API business, and c) recalibrating spending on innovative R&D. With niche approvals, market expansion for Ryaltris and product additions through in-licensing, we believe GNP is gearing up for a consistent turnaround in its overall performance.
Upgrade to BUY Product mix and lower R&D expenses drive margins YoY
* Revenue grew 7% YoY to INR32.4b (our estimate of INR33b). India formulations (DF) grew 12.4% YoY to INR12b (37% of sales). RoW (RoW + LatAm) sales grew 3.6% YoY to INR5.7b (18% of sales). Europe generics revenue grew 21.4% YoY to INR7b (21% of sales). NA revenues declined 3% YoY to INR7.8b (USD94m; 24% of sales).
* Gross margins (GM) expanded 190bp YoY to 65.8% due to lower RM costs and a change in the product mix.
* EBIDTA margin grew 25bp YoY to 18.8% due to higher sales, partly offset by higher employee expenses/other expenses (up 50bp/210bp as % of sales).
* PAT surged ~3x to INR3.6b (our est: INR2.9b) due to higher other income, lower extraordinary expenses and lower taxes.
Highlights from the management commentary
* For FY25, GNP projects revenue growth of 14-18% YoY to INR135-INR140b, GM of 65-67% and EBITDA margin of 19%.
* GNP expects India business to grow 10-15% YoY in FY25.
* The company believes that the EU business has much higher potential than the US business over the medium term.
* Ryaltris sales stood at USD20m; GNP expects USD80m sales in FY25.
* GNP filed for g-Flovent in May’24. GNP is working on ANDA filings of the other two strengths of g-Flovent pMD.
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