Buy Glenmark Pharma; target of Rs 360: KRChoksey

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Buy Glenmark Pharma; target of Rs 360: KRChoksey

KRChoksey is bullish on Glenmark Pharma and has recommended buy rating on the stock with a target of Rs 360 in its February 1, 2012 research report.

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KRChoksey is bullish on Glenmark Pharma and has recommended buy rating on the stock with a target of Rs 360 in its February 1, 2012 research report.

"Glenmark pharma reported strong numbers across the geographical regions but dismayed on the margins front mainly led by higher R&D cost & change of business mix. Low margin markets of Europe, Latin America & RoW grew robustly whereas Indian market grew marginally by 6.5% on y-o-y basis whereas flattish growth on a sequential basis. The company registered a Top-line growth of 34.2% on a y-o-y basis & 7.5% on a q-o-q basis & stood at Rs 1007cr excluding the out-licensing income. US reported a tremendous growth of 56.4% on a yearly basis but on a q-o-q basis it grew by 6.1%. The sequential lower growth was mainly due to higher base & phasing out of old products. Operating profit ex out-licensing income for Q3FY12 stood at Rs 181cr, a growth of 4.2% y-o-y. OPM declined by 496bps y-o-y & 203bps q-o-q & stood at 18% on the back of higher R&D expenses (7.5% of sales), staff expense (17.2% of sales) & change of business mix. The company incurred a forex loss of R 102cr post adjusting which the net profit stood at Rs 124.9cr, a growth of 13.7% y-o-y. NPM declined by 360bps q-o-q & 209bps y-o-y & stood at 12.4%."

"GPL posted top-line of Rs 1007cr excluding the out-licensing income of Rs 24cr which is a growth of 34.2% y-o-y & 7.5% q-o-q. The company grew across all the regions except India where it grew by 6.5% y-o-y & 0.3% q-o-q. Total generics segment grew by 46% y-o-y led by the US & the European regions. In the US market the company has a total of 73 ANDAs launched with 43 pending ANDAs. Further the US region grew merely by 6.1% on q-o-q basis as the company is phasing out the older products. Specialty segment grew by 24% y-o-y with major contribution from the regions of Brazil & RoW markets. Operating profit ex licensing income for Q3FY12 stood at Rs 181cr, a growth of 4.2% y-o-y & degrowth of 3.4% q-o-q. The lower growth was due to higher staff & R&D expense. Employee expenses as a % to sales stood at 17.2% whereas R&D expense stood at 7.5% for the quarter. The higher R&D spends was towards the NCE molecules. Operating profit margins dented by 203bps q-o-q & 496bps y-o-y. The decline in margins was mainly due to change in the business mix where contribution from low margin regions was higher compared to high margin regions like India & US."

"The quarter was mainly impacted due to the forex losses which is a onetime kind of expense & could reverse further as rupee appreciates. The higher spend is justified and is in line with long term gains for the company. We maintain our BUY recommendation with a target price of Rs 360, an upside of 24.5% to the current levels. Currently the company is trading at 14.5x its FY13 EPS of Rs 19.9," says KRChoksey research report. 

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