Buy Glenmark Pharmaceuticals ; target of Rs 1100: Axis Direct

Axis Direct's report on Glenmark Pharmaceuticals

Increase in inventory from Rs 12.7 bn (60 days’ sales) in FY15 to Rs15.7 bn (68 days’ sales) in FY16 owing to build-up of gZetia supplies (~Rs1.5 bn). Additionally, with channel consolidation and generics pricing trending lower in the US, Glenmark is trying to maintain/improve its market share in existing products (see Appendix), which also lead to some inventory build-up (Rs1bn) and increase in receivables.

Outlook

We upgraded Glenmark to BUY (Oct 28, 2016), as we believed it is in sweet spot given improvement in its key markets (US, India, Russia) –posted 18% revenue growth 9MFY17 (ex-gZetia) and as we expected the momentum to continue (projected 14% revenue growth & 450 bps EBITDA margin expansion to 23.3% over FY16-19E) along with reduction in net debt (given gZetiaone-offs).