Moneycontrol Pro Panorama | Glenmark’s sorry tale of debt finally ends

For Glenmark Pharma's investors, much now depends on cash utilisation and business development.

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

Glenmark Pharmaceuticals’ decade-long troubled affair with debt finally ended this week after it agreed to sell its subsidiary Glenmark Life Sciences. The Rs 5,651.5 crore consideration will turn Glenmark into a cash-surplus company, a coveted position.

The cash will strengthen Glenmark’s balance sheet and help it invest in its chosen business segments of dermatology, respiratory and oncology. However, the company is paying a high price to achieve this position.

It is foregoing an asset that is growing steadily and has better profitability. Glenmark Life generates only 11 percent of Glenmark Pharma’s sales. But it contributes to around one-fifth of Glenmark Pharma’s operating earnings, thanks to higher profit margins.

Also, Glenmark Pharma is not getting top dollar for Glenmark Life. The sale price of Rs 615 per equity share is lower than the current market rate and
the IPO price. The implied one year forward price to earnings multiple of around 13 times is low, considering Glenmark Life’s superior growth compared to generic API peers in recent years. API is active pharmaceutical ingredient.

The undemanding valuation and significant contribution of Glenmark Life to consolidated numbers means Glenmark Pharma will not be able to fully offset the revenue loss in the near term. The FY25 revenue and operating earnings estimates are being reset lower by analysts.

Still, the materialisation of the long-awaited balance-sheet deleveraging is a welcome development. For Glenmark Pharma's investors, much now depends on cash utilisation and business development.

High R&D investments and capital expenditure in the past have not yielded desired results. This had built up debt and Glenmark Pharma has had to shed assets, including the latest one, to maintain financial health. “This is the third transaction by Glenmark Pharma with a cumulative cash generation of Rs 6,250 crore over the past 12-15 months,” point out analysts at Motilal Oswal Financial Services.

While the incoming cash provides financial headroom, the company’s strategy to climb up the value chain building innovative products, and becoming a brand-led organisation, involves sustained investments. “The divestment will clear the current debt pile, but in the long run, it would continue to require cash to fund its R&D budget of Rs 1,300-1,400 crore per annum, marketing cost of Ryaltris and an ailing US generic business,” analysts at ICICI Securities said in a note. Ryaltris is a limited competition nasal spray drug used to treat allergic conditions.

In a call, the management has guided for moderation of expenditure. Judicious investments will go a long way in reviving the company.

Investing insights from our research team

Manoj Vaibhav Gems and Jewellery IPO: Will this regional player shine at the bourses?

Weekly Tactical Pick: This automaker has a long way to go

Does oil price matter for Indian equity markets?

Tracker

Monsoon Watch 2023 | Is the rain dance coming to an end?

What else are we reading?

A revised playbook for traders and investors -- both short and long term

Having more women MPs, MLAs not enough to improve status of women

Women’s Reservation Bill: Why almost every party is supporting the government’s legislation despite misgivings

ITC: Why it may emerge as a surprise suitor in FMCG buyouts

The genesis of Canada’s troubled relations with India

IMEEC is planned to benefit all member countries unlike China's BRI

Cipla acquisition plan a risky proposition for Torrent Pharma

Chart of the Day: Record imports to keep a lid on edible oil prices

Harnessing the Power of AI: Advancing financial inclusion

The new India story: Jobless growth, and a rising disconnect between education and employment

The plight of the ‘permacrisis’ and what to do about it (republished from the FT)

Lex | Private equity: financial engineering prevents valuation check (republished from the FT)

Climate: Australia hoped to dodge wildfires. El Niño has other plans

Shipping: China export rebound doesn't mean that the halcyon days are back

Personal Finance

Nifty at 20,000: BAF fund managers cut equity exposure, shift to large-caps

National Pension System: Not just a great retirement tool, it offers tax benefits too

Technical Picks: GAIL, Equitas Bank, Bharti Airtel and Nifty (These are published every trading day before markets open and can be read on the app).

R Sree RamMoneycontrol Pro