CRISIL raises Glenmark Pharma's outlook to 'Positive', reaffirms ratings

In fiscal 2025, the company's revenues grew 13% on-year (for like-to-like market) to Rs. 13,321 crore, led by a strong 32% growth in domestic formulations and continued traction in the European markets, although a 2.5% contraction in the US market restricted a further improvement in the topline. Revenues were stable during Q1FY26, with no major launches and discontinuation of non-core brands in the domestic market, however, revenue growth is expected to average 10-12% annually going forward, led by healthy growth in domestic formulations and growth in exports to Europe and rest-of-the-world markets. Sales growth in the US market is expected to revive on account of new product launches. Glenmark's operating profits remained steady at ~18% during the first quarter of fiscal 2026 (FY25: 18%). Revenues accrueing from the licensing deal, supported further by moderate R&D costs, stable input prices, increasing contribution from branded markets / products and better operating efficiency, profitability is expected to gradually improve, averaging 20-22% over the medium term.

R&D expenses, which were high at 10-12% of sales over the past 3-5 years, have moderated from fiscal 2024. The company has re-evaluated its R&D requirement, with R&D spends declining to ~9% of sales in fiscal 2024 and further to 7% in fiscal 2025 and likely remaining at similar levels over the medium term, with Ichnos Glenmark Innovation (IGI) – overseas unit, contributing to a majority of R&D spend. The company shall remain exposed to risks related to R&D in the innovative pipeline, wherein investments are high and returns uncertain.

The company recorded an exceptional loss of Rs 372.8 crore during fiscal 2025 on account of settlements for the three plaintiffs case and the restructuring of an overseas unit of IGI. Further, the company recorded an exceptional loss of Rs.323 crore relating to the settlement of a lawsuit in the US during Q1FY26. This follows fiscal 2024, where the company recorded an exceptional loss of Rs 900.1 crore due to the settlement on pricing practices with the Department of Justice relating to the generic drug pravastatin and a write-off of the oral solid dosage (OSD) and nebuliser unit in Monroe, US amidst high production costs. While the company does not have any major open lawsuits, any significant write-offs impacting the profit and loss account and balance sheet will be monitorable.

Crisil Ratings has combined the business and financial risk profiles of Glenmark and its 43 subsidiaries and step-down subsidiaries. All the entities, collectively referred to as Glenmark, operate in the pharmaceutical segment and have significant operational linkages and a common management. Crisil Ratings has also amortised goodwill arising from consolidation and intangibles over five years.

Glenmark's subsidiary, IGI signed an exclusive licensing agreement with AbbVie for ISB 2001, a novel tri-specific antibody. AbbVie will oversee the development and commercialisation across major markets including the North America, Europe, Japan and Greater China, whereas Glenmark will retain the rights across emerging markets such as Asia (excluding the regions mentioned above), Latin America, Russia, the Middle East, Africa, Australia and New Zealand, and South Korea.

As informed by the company to the exchange, as IGI received an upfront payment of USD 700 million on September 9, 2025, and is eligible for milestone-linked receipts aggregating to USD 1.225 billion, along with double-digit tiered royalties on revenues, particularly noteworthy given the drug's early developmental stage of Phase 1B trials. This transaction marks one of the largest biotechnology deals by an Indian company, underscoring Glenmark's R&D capabilities, thereby improving its business risk profile.

The substantial upfront payout to significantly improve the company's financial risk profile, with proceeds largely to be deployed for organic growth.

In the domestic formulations market, Glenmark is ranked 13th with a share of 2.25%; ten of its brands were in the top 300 as per IQVIA MAT (moving annual total) as of March 2025. Contribution of the domestic market to overall sales has been increasing over the past two years and accounted for 34% of the total revenue in fiscal 2025. Revenue from the domestic market grew 32% in fiscal 2025 as formulation sales – with 10.3% growth in Q4FY25 - outpaced the overall market, which grew by 6.9%, with further push from the consumer care business that recorded a primary sales growth of 24%. Domestic revenue is expected to expand at a healthy pace over the medium term, led by the company's strong market position in the chronic therapeutic segments, such as anti-virals, dermatology, respiratory, diabetes and cardiovascular therapy.

Financial risk profile remained comfortable during fiscal 2025 with healthy cash accrual of Rs 1,463 crore and adjusted gearing of 0.28 times primarily backed by a strong operating performance. However, net debt increased to Rs.797 crore as on March 31, 2025, from Rs. -427 crore as on March 31, 2024, for working capital requirements. The annual cash accruals of ~Rs 2000 crore would be sufficient to meet the debt obligation, incremental working capital requirement and annual capital expenditure (capex) spend of ~Rs.600 crore. Further, the substantial upfront payout of USD 700 million (~Rs.6,000 crore) to significantly improve the company's financial risk profile, with proceeds largely to be deployed for organic growth.

Unencumbered cash balance stood at Rs 1,675 crore as on March 31, 2025, and the average bank limit utilisation was 61% for the 12 months ended March 2025. Cash accrual is expected to be more than Rs 2,000 crore over the medium term. The substantial upfront payout of USD 700 million (~Rs.6,000 crore) to also significantly improve the company's liquidity position.

Crisil Rating's expects an improved business as well as financial risk profile for Glenmark, following signing of the global licensing deal with AbbVie Inc., through improved profitability and stronger balance sheet position.

Financial risk profile remained comfortable during fiscal 2025 with healthy cash accrual of Rs 1,463 crore and adjusted gearing of 0.28 times primarily backed by a strong operating performance.