Buy Glenmark Pharma Ltd For Target Rs.3,000 by Motilal Oswal Financial Services Ltd
Ahead on operations; in-line earnings Superior execution in DF/NA; gross debt free by FY27
* Glenmark Pharma (GNP) delivered a better-than-expected operational performance in 2QFY27, with 5% beat on revenue/EBITDA. Earnings were largely in line as the impact of higher-than-expected EBITDA was offset by lower other income.
* On like-to-like basis, GNP outperformed industry in domestic formulation segment by almost 300bp for the quarter, backed by superior execution in cardiology, dermatology and respiratory segment. It continued to launch differentiated oncology, respiratory as well as dermatology product, supporting better growth prospects in DF segment.
* Excl. licensing income, GNP delivered healthy growth in North America (NA), largely led by product launches. Work is ongoing on additional respiratory filings in MDI/Nasal sprays.
* EM delivered strong performance in 2QFY27, driven by robust secondary sales growth, continued market outperformance, portfolio expansion, and strong execution across regions.
* We largely maintain our estimates for FY27/FY28. We value GNP at 26x 12- month forward earnings to arrive at a TP of INR3,000.
* The strategic reset in DF and new launches in NA has led to improved performance and better outlook going forward. The clinical development related to innovative oncology and immunology molecules are progressing on track. Also, the company intends to be gross debt zero by FY27, strengthening the balance sheet. Maintain BUY.
Margins expansion supported by product mix and operating leverage
* GNP sales grew 78.7% YoY to INR42.3b (4.6% beat). The YoY growth is high partly due to a low base of past year on account of strategic recourse taken by the company.
* Gross margin expanded 2,250bp YoY to 69.3%.
* EBITDA margin expanded to 20.3% vs -36.7% in 2QFY26 (our est. 20.3%), majorly due to a reduction in R&D expenses (down 280bp YoY) and other expenses (down 1,860bp YoY) as % of sales.
* R&D for the quarter was INR3.4b (8.1% of sales).
* EBITDA stood at INR8.6b in 2QFY27 (4.7% beat) from a loss of INR8.7b in 2QFY26.
* PAT came in at INR4.8b in 2QFY27 (broadly in line with est.) from a loss of INR8.7b in 2QFY26.
Superior YoY growth across all segments except Europe
* Domestic formulation sales grew 704.2% YoY to INR13.3b (31% of revenue). While GNP has outperformed IPM on like-to-like basis, reported YoY growth was higher due to strategic recourse taken by the company in 2QFY26.
* NA sales grew 51.9% YoY to INR12b (28% of revenue). Excl. licensing income, NA sales grew 31%/25% YoY in 2QFY27/1HFY27.
* Emerging Markets sales grew 33.2% YoY to INR8.8b (21% of revenue).
* Europe sales grew by 6.2% YoY to INR7.9b (19% of revenue).
Key highlights from the management commentary
* Core EBITDA margin is guided to continue its upward trajectory in 2HFY27 as operational leverage materializes from front-loaded investments made in 1H.
* It is advancing US commercialization with recent launches of Sugammadex injection, fluticasone nasal spray (Rx/OTC), and nintedanib capsules, alongside upcoming FY27 launches of axitinib, Flovent 110, and generic ipratropium MDI.
* Gross debt is guided to be zero by the end of FY27, supported by projected 2H cash flow generation of INR7-8b.
* Emerging Markets revenue is guided to deliver consistent 15% to 20% annual growth over the next few years.
* Ryaltris is tracking annual sales of USD130m to USD140m in FY27, expanding at close to 40% YoY and addressing a USD3.5b global steroidal nasal spray market.
* GNP initiated end-to-end commercialization of Ryaltris in the US, taking charge of brand strategy and market access.
* IGI plans to file an IND application for ISB 2301, a first-in-class multispecific immune cell activator targeting solid tumors by CY26 end.
Reiterate BUY
* We largely maintain our estimates for FY27/FY28. We value GNP at 26x 12- month forward earnings to arrive at a TP of INR3,000.
* The strategic reset in DF and new launches in NA has led to improved performance and better outlook going forward. The clinical development related to innovative oncology and immunology molecules are progressing on track. Also, the company intends to be gross debt zero by FY27, strengthening the balance sheet. Maintain BUY.
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