Neutral Glenmark Pharma; target of Rs 420 : Motilal Oswal

Motilal Oswal's research report on Glenmark Pharma

We attended GNP’s investor day to understand the management’s strategies across major business segments over the next four-to-five years. GNP aims to boost RoCE (EBIT/capital employed) to 22% by FY27 (from 17% in FY22), with an increased share of the branded generics business, controlled R&D spends towards the NCE portfolio, and sustained improvement in operating leverage. It also aims to have zero net debt by FY26. We value GNP at 10x 12M forward earnings to arrive at our TP of INR420. We remain Neutral on the stock, given its 5% earnings CAGR over FY18-22. We expect earnings CAGR to be moderate over FY22-24 (9%). The benefit from complex product filings is expected from FY25,subject to timely approval. Asset utilization at Monroe for the US market is also subject to successful resolution of regulatory issues.

Outlook

We value GNP at 10x 12M forward earnings to arrive at our TP of INR420. Considering the moderate earnings growth over the next two years, regulatory hurdles at Monroe and Baddi, and commercial opportunities from niche products to be more back-ended (FY25 onwards), we maintain our Neutral stance on the stock.