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Glenmark: Hit by higher costs
Feb 1, 2011

Glenmark has announced its 3QFY11 results. The company has reported 17% YoY and 16.5% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 17% YoY during 3QFY11 led by the robust performance of its speciality business.
  • EBDITA margins fall by 3.3% due to higher raw material and staff costs (as percentage of sales).
  • PBT growth at 38% YoY is stronger than the growth in operating profits due to reduction in interest costs and depreciation charges and higher other income.
  • However, because of higher tax expenses, net profit growth slows down to 16.5% YoY.


Financial performance: Consolidated snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 6,483 7,585 17.0% 17,996 21,962 22.0%
Expenditure 4,781 5,844 22.2% 13,344 16,011 20.0%
Operating profit (EBIDTA) 1,703 1,741 2.3% 4,651 5,952 28.0%
Operating profit margin (%) 26.3% 23.0%   25.8% 27.1%  
Other income 13 266 1924.4% 179 563 214.3%
Interest 368 304 -17.3% 1,262 889 -29.5%
Depreciation 363 344 -5.3% 1,037 1,014 -2.2%
Profit before tax 985 1,359 38.0% 2,531 4,611 82.2%
Tax 44 263 499.8% 247 843 241.8%
Profit after tax/ (loss) 941 1,096 16.5% 2,284 3,767 64.9%
Net profit margin (%) 14.5% 14.4%   12.7% 17.2%
No. of shares (m)       269.7 270.2  
Diluted earnings per share (Rs)*       17.7  
P/E ratio (x)         17.3  
* on a trailing 12 months basis

What has driven performance in 3QFY11?
    Glenmark's overall revenues grew by 17% YoY during the quarter largely led by the robust performance of its speciality business. With respect to this business, Latin America (excluding Argentina) and India did well to enable the business to report a healthy 34% YoY growth. Latin America grew by 88% YoY. This was attributed to the improvement in the Brazilian business, contribution from newer markets such as Venezuela, Ecuador and Peru as well as the low base effect of last year. India logged in a growth rate of 30% YoY due to strong performance of its power brands and new product launches. Sales from the semi-regulated markets and Europe grew by 27% YoY and 28% YoY respectively. Further there was an out-licensing income of Rs 232 m in 3QFY10, which was not present this quarter. On excluding the same, growth in overall sales stood at 21% YoY.

    Consolidated business snapshot
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Generics business            
    US 1,886  2,041 8.2%   5,378 6,109 13.6%
    Latin America (Argentina)  76 43 -43.5%   263 233 -11.2%
    Europe  66   154 132.6%   202 409 103.0%
    API 776   750 -3.4%   1,925 2,149 11.6%
    Total generics business (i) 2,804  2,988 6.5%   7,767 8,900 14.6%
    Speciality business            
    Latin America (Brazil & others) 280   528 88.4%   1,015 1,427 40.6%
    Semi regulated markets (SRM) 906  1,154 27.4%   2,494 2,770 11.1%
    Europe 351   448 27.5%   904 1,011 11.9%
    India 1,843  2,390 29.7%   5,345 6,566 22.8%
    Total speciality business (ii) 3,380  4,521 33.7%   9,757  11,774 20.7%
    Out-licensing revenue (iii) 232 -     232 895  
    Total (i+ii+iii) 6,417 7,508 17.0% 17,757 21,569 21.5%

  • Revenues from the generics business grew by a tepid 6.5% YoY during the quarter largely due to the subdued performance of the US business and decline in sales from the Argentinean and API businesses. Revenues from the US grew by a lukewarm 8% YoY. During the quarter, the company launched 6 products in the US market. Further, out of the total 13 potential FTF Para IV applications filed by the company, Glenmark is the sole first filer on 4 products. These 4 products together had sales of around US$ 1.5 bn. Europe was the only saving grace in the generics business as sales grew by an impressive 133% YoY led by the expansion of the UK business.

  • Operating margins dipped by 3.3% during 3QFY11 largely due to higher raw material and staff costs (as percentage of sales). As a result, operating profits barely grew by 2% YoY. Having said that, PBT growth at 38% YoY was stronger than the growth in operating profits due to reduction in interest costs and depreciation charges and higher other income. However, because of higher tax expenses, net profit growth slowed down to 16.5% YoY. For the nine month period, sales and net profits grew by 22% YoY and 65% YoY respectively.

What to expect?
At the current price of Rs 322, the stock is trading at 12 times our estimated FY13 earnings. Going forward, the key growth drivers for Glenmark will be the US, India and Latin America. In US especially, its focus on a niche product portfolio will augur well for the company. Plus, Glenmark has also unveiled plans of launching oncology products in the US, by using its Argentinean operations as the base. On the R&D front, the company continues to be in talks with global pharma majors to garner out-licensing deals. Overall, we maintain our view ResearchPro subscribers can view latest updates here on the stock from a long term perspective.

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