Buy Glenmark Pharmaceuticals; target Rs 360: PINC Research

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Buy Glenmark Pharmaceuticals; target Rs 360: PINC Research

PINC Research is bullish on Glenmark Pharmaceuticals and has recommended buy rating on the stock with a target price of Rs 360 in its November 10, 2011 research report.

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PINC Research is bullish on Glenmark Pharmaceuticals and has recommended buy rating on the stock with a target price of Rs 360 in its November 10, 2011 research report.

"Glenmark Pharmaceuticals reported strong sales growth for the quarter which was higher than our and street estimates driven by US, India and RoW formulation segments. The company continues to witness strong traction in US business on back of improving market share in existing products and new product launches. However, margins were under pressure on back of increase in raw-material prices and unfavorable product mix (higher RoW segment sales). The company expects recurring EBITDA margins to be in range of 21-22% for FY12."

"The company reported strong sales growth of 29.5% YoY which was ahead of our and street estimates driven by US, RoW and India formulation segments. US sales grew by 34.1% YoY on of back increasing market share in existing products and new product launches. Glenmark also launched generic Malarone in September and has 180-days exclusivity. The company also witnessed solid growth in India which was up by 19.7% YoY while RoW market for Glenmark grew by 82.4% YoY on back of Russia/CIS and Africa region. Glenmark reported EBITDA margins (ex R&D income and Forex loss) of 20.5%, below our estimates of 21.8% on back of increasing raw-material cost. The raw-material cost increased by 34.2% YoY on back of change in product mix, increase in raw-material prices and higher sample cost. As a result the gross margins contracted by 124bps. The employee cost was up by 18.3% YoY, while SG&A cost (ex forex loss) increased by 27.9% YoY. Further the company's net profit was marred by one time payment of USD29mn to Paul Capital and MTM forex loss of Rs 850mn."

"We have revised our sales estimates upwards for FY12 and FY13 by 1-2% to factor in strong sales growth across segments but cut our earnings estimates for FY12 and FY13 by 3-7% on back of higher material and SG&A cost. The stock is trading at 18.9x FY12E and 15.5x FY13E recurring earnings. We continue to maintain 'BUY' on the stock with a target price of Rs 360 valuing the base business at Rs 322 (18x one year forward earnings); Rs 13 P IV FTF (Zetia and Malarone) and Rs 25 for R&D pipeline (Crofelemer and GBR 500)," says PINC Research report.

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To read the full report click on the attachment