Buy Glenmark Pharmaceuticals; target of Rs 840: Axis Direct

Axis Direct's report on Glenmark Pharmaceuticals

Q1FY18 PAT at Rs 3.33 bn (+47% YoY) beat consensus estimate on strong growth in the US (55% YoY) and India business (15% YoY). gZetia sales was USD 55 mn (achieving guidance of USD 170-180 mn during exclusivity) and helped reduce net debt by Rs 3 bn. Company expects higher R&D (13% of sales) in Q2 given Ph-2 trials for GBR 830 and Ph-3 trials for GSP 304, only to normalize to 11% in FY18. It expects US base business growth to improve (more so in H2) on 3-4 derma products. It expects 8-10% sales growth with 22% margin in FY18 (in line with our expectations).

Outlook

We maintain BUY and FY18/19E estimates. Raise TP to Rs 840 (18x FY19E EPS; vs. 800 earlier at 17x) given debt reduction, its strong R&D pipeline in US, steady India and improving EM business. NCE licensing income critical to further improve B/S and C/F in our view.