Shares of Glenmark Pharma fell 4.6 percent intraday on June 30 after global brokerage CLSA downgraded the stock to sell after Q4 earnings.
"Flat earnings outlook for FY21, limited scope for debt reduction and limited catalysts make us downgrade our rating from buy to sell for Glenmark," said the global brokerage which cut its FY22 EPS estimate by 4 percent and lowered target to Rs 420 from Rs 440 per share.
"The mixed data points emerged from first part of Phase 2b trials from its lead molecule ISB830. The outlook on molecule remains crucial for company's fund raising plans going ahead," said CLSA.
Glenmark reported 36 percent year-on-year increase in Q4FY20 profit at Rs 220 crore and 8 percent growth in revenue at Rs 2,764 crore during the quarter compared to year-ago.
On the operating front, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 28 percent year-on-year to Rs 465 crore and margin jumped 260 bps to 16.8 percent in quarter ended March 2020.
Overall, earnings beat analyst estimates.
"Q4 operating performance beat estimates led by tight cost controls, though the sales trend was mixed, with strong growth in India and weak in US. India business posted over 15 percent growth for the third straight quarter, partly led by pre-buying," said Emkay Global which retained buy rating on the stock with a revised target of Rs 526.
US continued to disappoint, falling 1 percent in Q4 YoY owing to price erosion in the derma segment, fall in sales of key products and Ranitidine impurity issue.
"With a thin pipeline (44 pending approvals) and low filings (8 in FY20), we expect US growth to remain moderate in the next few years," Emkay said.
Net debt remained high at Rs 3,760 crore (versus Rs 3,650 crore QoQ) and up almost Rs 300 crore YoY. "This is much higher than management guidance of Rs 700-800 crore reduction in FY20. Debt reduction remains key to the stock's re-rating, in our view," said the brokerage.
In the full year FY20, Glenmark's profit fell 16.1 percent to Rs 775.97 crore but revenue increased 7.9 percent to Rs 10,640.9 crore compared to previous year.
"Glenmark Pharma ended FY20 in a third consecutive year of earnings decline, albeit at a lower intensity versus previous years. The outlook is improving, led by cost reduction initiatives in R&D as well as other operating expenses. Reduced price erosion in the US base business, supported by new launches, would further strengthen the earnings trajectory going forward," said Motilal Oswal while maintaining neutral rating on the stock as the current valuation adequately factors an earnings upside over the medium term.
The brokerage raised its EPS estimate by 3/8 percent for FY21/FY22 to factor better traction in the US business / Domestic Formulations and cost rationalization benefits. "We value Glenmark on a 13x 12M forward earnings basis to arrive at price target of Rs 430."
The stock was trading at Rs 449.50, down 3.85 percent on the BSE at 14:35 hours IST.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.