FinQuest Securities maintains 'Hold' on Glenmark Pharma

FinQuest Securities' research report on Glenmark Pharmaceuticals

"Glenmark Pharma reported strong 25.3 percent Y-o-Y increase in revenue excluding licensing income at Rs.13,355mn beating the street estimates by 3 percent and our estimates by 6 percent. The strong set of results was due to continuing robust performance in Indian market whose revenue came in at Rs. 3,550mn, up 32 percent Y-o-Y and 7 percent Q-o-Q. US business grew 25 percent Y-o-Y(17 percent in constant currency terms) at Rs.4,291mn($79mn) and was flat Q-oQ led by the recent launch of Mupirocin calcium cream. Core Net Income (Ex. Licensing Inc. & Forex) grew 49 percent Y-o-Y to Rs.1,586 mn 3 percent higher than our estimate led by the strong revenue growth. Management has guided 20 percent growth in topline in FY14 (ex-cluding licensing income) reflects the management confidence to deliver and scale-up the business in key geographies." "GNP Core EBIDTA margins for Q4FY13 remained flat Q-o-Q at 20.1 percent compared to 20 percent in Q3FY13. Gross margins saw a commendable jump of 320bps Q-o-Q due to launch of Mupirocin calcium cream in the US markets and higher contribution from Indian markets. The increase in Gross margins didn't flow to the bottom line due to increase in other expenses which included one-time GDUFA fees, higher advertising expenditure due to OTC launches in Russia. GNP reported Core EBIDTA (ex-Licensing and forex) at Rs.2,690mn, 1 percent higher Q-o-Q and 3 percent higher than our estimate. Management has guided Core EBIDTA FY14 in the range of ~Rs.12,250m which reflects a flat margin Y-o-Y and has indicated that R&D expenditure would be 8.5 percent of sales in FY14." "We expect GNP revenue to grow at 15 percent CAGR during FY13-16. We value the company at 17x FY14 earnings and have assigned Rs. 60.3 to its NCE/Para IV pipeline/filings (adjusting for potential Tarka liability). We have not factored in any licensing income from its NCE pipeline in our projections. GNP is currently trading at a P/E of 16x FY14E earnings compared to the large cap sector mean of 19x. We believe the stock is fairly valued at the current price and there is limited room for further upside. We maintain our hold rating on GNP and maintain our target price of Rs.536 citing multiple rerating has already played out and believe that near terms triggers are priced in. The major drivers for the stock going ahead would be the launch of Crofelemer by Salix, positive data on its NCE pipeline (any out licensing deal/ movement of pipeline products in development)," says FinQuest Securities research report. Also Read: Glenmark Pharma can touch Rs 700: Sukhani Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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