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Glenmark: Expenses see a rise

Jan 28, 2014

Glenmark announced third quarter results of financial year 2013-2014 (3QFY14). The company reported a 16% YoY and 1% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 16% YoY during 3QFY14 led by the robust performance of its generics business.
  • EBDITA margins shrink by 0.4% to 22.8% due to higher staff costs (as percentage of sales).
  • PBT growth at 5% YoY is considerably lower than the growth in operating profits due to the surge in depreciation charges.
  • Net profits grow by a mere 1% YoY during the quarter.

Financial performance: Consolidated snapshot
(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Net sales 13,816 16,018 15.9% 36,779 43,034 17.0%
Expenditure 10,615 12,368 16.5% 29,212 33,749 15.5%
Operating profit (EBIDTA) 3,202 3,650 14.0% 7,566 9,284 22.7%
Operating profit margin (%) 23.2% 22.8%   20.6% 21.6%  
Other income 52 51 -1.4% 143 218 52.3%
Interest 400 473 18.2% 1,164 1,422 22.1%
Depreciation 356 611 71.4% 952 1,565 64.4%
Profit before tax 2,497 2,617 4.8% 5,593 6,516 16.5%
Tax 366 474 29.3% 1,062 1,494 40.7%
Profit after tax/ (loss) 2,130 2,143 0.6% 4,532 5,022 10.8%
Net profit margin (%) 15.4% 13.4%   12.3% 11.7%  
No. of shares (m)       270.7 271.1  
Diluted earnings per share (Rs)*         24.5  
P/E ratio (x)         22.6  
* on a trailing 12 months basis & excluding extraordinary items

What has driven performance in 3QFY14?
  • Glenmark's overall revenues grew by 16% YoY during the quarter largely led by the healthy performance of its generics business. Revenues from the generics business grew by 25% YoY during the quarter largely led by the US and Europe. Revenues from the US grew by 19% YoY during the quarter. Glenmark was granted tentative approval for Desmopressin tablets. Further, the company filed 3 ANDAs with the USFDA taking the total number of filings for the fiscal so far to 12. Glenmark is looking to file for another 8-10 ANDAs in the coming quarter. The company's marketing portfolio in the US as at the end of December 2013 consisted of 90 generic products. In addition to this, the company has 59 applications pending in various stages of the approval process. Of these, 29 are Para IV applications. Europe grew at a healthy rate of 72% YoY through increased product sales, licensing revenues and expansion of its presence through distribution partners in more European countries. The API business recorded a healthy growth of 28.5% YoY during the quarter.

    Consolidated business snapshot
    (Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Generics business
    US 4,365 5,214 19.4% 12,596 15,262 21.2%
    Europe 395 680 72.1% 1,116 1,662 49.0%
    API 1,151 1,479 28.5% 3,318 3,823 15.2%
    Total generics business (i) 5,911 7,373 24.7% 17,030 20,747 21.8%
    Speciality business
    Latin America 1,015 1,139 12.3% 2,675 2,984 11.5%
    Rest of the World (ROW) 2,620 3,010 14.9% 5,909 6,431 8.8%
    Europe 467 678 45.3% 1,116 1,466 31.4%
    India 3,307 3,812 15.3% 9,545 11,275 18.1%
    Total speciality business (ii) 7,408 8,640 16.6% 19,245 22,156 15.1%
    Out-licensing revenue (iii) 493 -   493 118 -76.0%
    Total (i+ii+iii) 13,813 16,012 15.9% 36,769 43,021 17.0%

  • With respect to the speciality business, there was good growth across all geographies. Revenues from this business were up 17% YoY. Growth in India was led by strong performance of its dermatology, cardiac and respiratory segments. Latin America grew by 12% YoY, while Europe grew by a robust 45% YoY. Growth in Europe was on account of new product launches in the Czech Republic, Romania, Slovakia and Poland. The Rest of the World (ROW) region grew by a decent 15% YoY during the quarter.

  • Operating margins shrunk by 0.4% during the quarter to 22.8% largely due to higher staff costs (as percentage of sales). As a result, operating profits grew 14% YoY. Having said that, growth in profit before tax (PBT) was considerably lower at 5% YoY on account of the surge in depreciation charges. As was indicated in 2QFY14, the depreciation run rate is expected to remain at Rs 600 m per quarter for the remaining part of the year. The increase in depreciation was partly due to increase in amortization, which partly pertained to write off of new products launched during the quarter. As per the company's policy, as and when it launches new products, it writes off over a period of time. Glenmark had launched various drugs in this quarter, resulting in an increase in this cost. Net profits grew by a mere 1% during the quarter.
What to expect?
At the current price of Rs 554, the stock is trading at a price to earnings multiple of 12.6 times our estimated FY16 earnings. Going forward, the key growth drivers for the company will be the US, Latin America and ROW markets. In US especially, its focus on a niche product portfolio will augur well for the company and the business expected to ramp up once the product approvals come through. The management remains confident of the Indian business witnessing healthy growth atleast for the next 4-5 quarters.

The company is expecting trial data for its R&D pipeline in the next 12-18 months and is also looking out for licensing partners for its pipeline. Overall, we maintain Hold rating on the stock.

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