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Glenmark: US, Latam led growth
Jan 22, 2008

Performance summary
  • Revenues grow by 55% YoY fuelled by strong growth in the US and Latin American (Latam) markets and contribution from the European market through the acquisition of the Czech company Medicamenta.

  • EBDITA margins contract by 0.3% due to a considerable rise in purchase of traded goods (as percentage of sales).

  • Despite higher tax, interest and depreciation expenses, net profits grow by 48% YoY led by the strong performance at the operating level.

Financial performance: Consolidated snapshot
(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net sales 4,380 6,794 55.1% 8,679 14,056 62.0%
Expenditure 2,052 3,205 56.2% 5,409 8,259 52.7%
Operating profit (EBIDTA) 2,328 3,589 54.2% 3,270 5,798 77.3%
Operating profit margin (%) 53.1% 52.8%   37.7% 41.2%  
Other income 31 27 -11.3% 84 105 24.8%
Interest 100 175 74.7% 257 477 85.5%
Depreciation 118 169 42.4% 303 474 56.6%
Profit before tax 2,140 3,272 52.9% 2,794 4,951 77.2%
Tax 250 472 88.8% 316 828 162.4%
Profit after tax/ (loss) 1,890 2,800 48.2% 2,479 4,123 66.3%
Net profit margin (%) 43.1% 41.2%   28.6% 29.3%  
No. of shares (m) 239.3 246.8   239.3 246.8  
Diluted earnings per share (Rs)*         19.2  
P/E ratio (x)*         21.1  
(* on a trailing 12-months basis)

What has driven performance in 3QFY08?
  • Glenmark’s topline on a consolidated basis grew by 55% YoY during 3QFY08 led by superlative performance of its formulations business in the US and Latin America (Latam). Revenues from the US markets (which will form part of Glenmark Generics Ltd) ballooned by 144% YoY largely due to a ramp up in the number of products launched. During the quarter, Glenmark received US FDA approval to market 2 products taking the total number of products launched in the US market to 23. Out of these 2 products, the company had a shared exclusivity for ‘Trileptal’, which was instrumental in augmenting revenues. The company expects to end FY08 with 28 products in the US market. With this, Glenmark now has over 40 ANDAs undergoing FDA approval. Besides this, the company has filed a total of 4 potential first to file Para IV challenges so far, three of which are ‘Desloratidine’, ‘Exetimibe’ and ‘Atomoxetine’. Of these three, if successful, Glenmark could be the only company to have the 180-day exclusivity on ‘Exetimibe’.

  • In Latam, revenues from the Argentina oncology business (which will be part of Glenmark Generics Ltd) registered an 8% YoY growth. The company filed one dossier and launched the product ‘Letrozole’ during the quarter. The other markets of Latam will fall under the speciality business of Glenmark. This business reported a superlative 150% YoY growth in revenues with the key contributors being Brazil, Venezuela and Columbia. Glenmark filed 10 new dossiers and launched 2 branded generics products during the quarter in Brazil. Overall, the company launched 30 products in the Latam markets.

    Consolidated business snapshot
    (Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
    Generics business            
    US 835 2,041 144.3% 1,404 3,678 161.9%
    Latin America (Argentina) 84 90 7.8% 210 250 19.1%
    API 390 548 40.4% 962 1,368 42.2%
    Total generics business (i) 1,309 2,678 104.6% 2,576 5,296 105.6%
    Speciality business            
    Latin America (Brazil & others) 208 520 149.5% 535 1,485 177.5%
    Semi reulated markets (SRM) 425 522 22.6% 1,334 1,513 13.4%
    Europe - 124   - 285  
    India 1,123 1,214 8.1% 3,093 3,913 26.5%
    Total speciality business (ii) 1,757 2,379 35.4% 4,962 7,196 45.0%
    Out-licensing revenues (iii) 1,395 1,793 28.5% 1,395 1,793 28.5%
    Total (I+ii+iii) 4,461 6,851 53.6% 8,934 14,284 59.9%

  • As far as the other markets are concerned, while the semi-regulated markets grew by 22% YoY, revenues from India and the API business grew by 8% YoY and 40% YoY respectively. The acquisition of the Czech company Medicamenta led Glenmark to generate revenues from the European region. The company had entered into an out-licensing agreement with Eli Lilly for the former’s molecule GRC 6211 (for various pain conditions) and received US$ 45 m as upfront milestone payments, which have been reflected in Glenmark’s revenues during the quarter.

  • Operating margins, on a consolidated basis, contracted marginally by 0.3% during the quarter largely due to a sizeable rise in purchase of traded goods (as percentage of sales), which was due to the rise in the costs of certain intermediates purchased. Strong performances at both the topline and the operating level led to the superlative 48% YoY growth in the bottomline during the quarter. This robust growth was attained despite higher tax, interest and depreciation expenses.

What to expect?
At the current price of Rs 405, the stock is trading at a multiple of 21.7 times our estimated FY10 earnings (excluding the in-licensing deals). Glenmark’s presence in the regulated markets, especially the US, has been gaining scale and the company has adopted the strategy of entering into alliances with companies, and this along with a ramp up in product filings is expected to give a further boost to its US generics business going forward. Similarly, the company has embarked on a strategy of increasing its presence in the Latam and semi-regulated markets as well, which will further drive topline growth. Thus, the international business is expected to gain significant traction going forward.

On the R&D front, with ‘Oglemilast’ having completed Phase II-A clinical trials, Glenmark is awaiting the receipt of the next milestone payment for the same from Forest Labs. The company has also signed out-licensing deals with Merck KgaA and Eli Lilly for GRC 8200 and GRC 6211 respectively. Thus, Glenmark has envisaged receiving milestone payments of around US$ 69 m every year till FY09. The company has unveiled plans of restructuring its business and list Glenmark Generics Limited (comprising the US generics, Argentina oncology and API businesses) on the bourses during 1QFY09. Given the company’s strong performance during 9mFY08, we shall have to accordingly upgrade our numbers for the full year.

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