Buy Glenmark Pharma; target of Rs 873: Motilal Oswal

Motilal Oswal's report on Glenmark Pharma

Glenmark Pharma’s (GNP) 2QFY15 operational performance was below estimates. Reported sales grew 14.3% YoY to INR16.7b (4% beat) and reported EBITDA grew 3.4% YoY to INR3.3b (3% miss). Reported PAT grew 15% to INR1.65b (4% miss).

Revenue growth was aided by stronger growth seen in Latam (157% YoY) and India (14.5%); US declined 9% YoY due to lack of new launches in the quarter. Growth in Europe was in line at 25% YoY.

Core EBITDA margin at 19.5% was lower than the estimate of 21%, due to a higher one-time personnel cost during the quarter.

"FY15 continues to be a slow year for GNP, mainly due to muted growth expectation in the US. Despite a weak US performance, GNP has been able to retain margins ~20% through strong performance in India, key semi regulated markets and Latin America. We believe 2QFY15 was a trough quarter with respect to margins and expect operating leverage to come into play as US approvals start to flow through. We thus expect FY16-17 performance to be much stronger led by US, and forecast strong core earnings CAGR of 20% over FY14-17E, despite higher R&D costs. We upgrade the stock to a Buy from Neutral, with a revised target price of INR873 (20x FY17E core EPS + INR14/share from Crofelemer and FTFs)", says Motilal Oswal research report.

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