Buy Glenmark Pharmaceuticals; target Rs 368: Sushil Finance

“Glenmark Pharmaceuticals Ltd. (Glenmark) has reported strong set of numbers for the quarter ended Dec’11; however a MTM loss to the tune of Rs. 1020 mn is a dampener on the bottom line. The company’s top line has increased by 37.7% YoY. PAT witnessed a degrowth of 57.9% on a YoY basis to Rs. 461.2 mn. Revenues grew by 37.7% YoY from Rs. 7486.5 mn in Q3FY11 to Rs. 10310.9 mn in Q3FY12. The company’s specialty business which contributes ~56% to the sales of the company registered a strong growth of 34.2% as it recorded an out licensing income of Rs. 238.3 mn in Q3FY12 taking it to a total of Rs. 2535.2 mn for 9MFY12. The company’s generics business registered a growth of 45.3%.”

“Glenmark’s Specialty business (excluding out licensing income) increased to Rs. 5606.9 mn in Q3FY12 from Rs. 4356.6 mn in Q3FY11 registering a growth of 28.7% mainly on the back of a strong growth in its LatAm business (47.5%), Europe (48.3%) and a 48% growth in its ROW business. The out-licensing revenue of Rs. 238.3 mn recorded in this quarter pertains to milestone receipt on Phase I completion for GRC 15300 from Sanofi. Domestic formulations grew ~11.3% from Rs. 2287.9 mn in Q3FY11 to Rs. 2546.7 mn in Q3FY12 mainly on account of the company’s efforts at reducing channel inventory and it is also expected to remain weak in Q4FY12.”

“On the Generics side, the business grew 45.3% on the back of a 56.3% growth in the US market and a 57.9% growth in the W European region. Its API business registered a growth of 14.8% in Q3FY12. Operating profit reported a de-growth of 40.9% YoY from Rs. 1741 mn in Q3FY11 to Rs. 1029 mn in Q3FY12; whereas on account of weaker growth in high margin domestic business, higher raw material cost, employee cost & other expenses (forex loss of Rs. 1020 mn on foreign loans & higher R&D spend), the EBIDTA margin came in at 10.0% v/s 23.0% in Q3FY11. The raw-material cost increased by 49.2% YoY on back of change in product mix and lower share of domestic business. Adjusted EBIDTA (excluding forex loss) came in at Rs. 2049 mn leading to margins to be at 19.9% in Q3FY12. Reported Net Profit de-grew by 57.9% YoY from Rs. 1095.6 mn to Rs. 461.2 mn in Q3FY12 whereas margins were at 4.5% mainly on the back of a MTM forex loss of Rs. 1020 mn on foreign loans.”

“Despite a challenging global environment, Glenmark registered strong revenue growth for the quarter with strong performance by the US (56%), ROW (48%), Latin America (48%) and EU (58%). We expect the growth momentum to continue, driven by consistent growth in its domestic business, the launch of FTF products and increased traction in existing products (Malarone launched last quarter) in the US market & continuous recovery in LatAm and other semi-regulated markets. We have altered our estimates to factor in strong growth in US and LatAM markets and higher R&D spend; however we keep our target price unchanged at Rs. 368 (based on 18x its FY13E EPS of Rs. 20.5). More out-licensing deals, milestone payments and the successful launch of Crofelemer would act as an upside risk to our estimates,” says Sushil Finance research report.

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