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Glenmark: Limping back to recovery
Feb 4, 2010

Performance summary
  • Revenues grow by 11% YoY during 3QFY10 led by the specialty business which grows by 19% YoY.
  • EBDITA margins reduce by 6.4% due to an increase in raw material costs and other expenditure (as percentage of sales).
  • Bottomline grows by 16% YoY despite 11% YoY fall in operating profits due to substantially lower tax expenses.


Financial performance: Consolidated snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 5,827 6,483 11.3% 16,058 17,996 12.1%
Expenditure 3,923 4,781 21.9% 11,037 13,344 20.9%
Operating profit (EBIDTA) 1,904 1,703 -10.6% 5,021 4,651 -7.4%
Operating profit margin (%) 32.7% 26.3%   31.3% 25.8%  
Other income 79 13 -83.3% 608 179 -70.5%
Interest  343 368 7.2% 685 1,262 84.2%
Depreciation 291 363 25.0% 731 1,037 41.8%
Profit before tax 1,349 985 -27.0% 4,212 2,531 -39.9%
Tax 535 44 -91.8% 1,070 247 -76.9%
Profit after tax/ (loss) 814 941 15.5% 3,142 2,284 -27.3%
Net profit margin (%) 14.0% 14.5%   19.6% 12.7%  
No. of shares (m)       250.5 269.7  
Diluted earnings per share (Rs)*         8.3  
P/E ratio (x)         31.3  
* excluding extraordinary items

What has driven performance in 3QFY10?
  • Glenmark’s overall revenues grew by 11% YoY during the quarter led by the speciality business which grew by 19% YoY. As far as the speciality business is concerned, in Latin America (excluding Argentina), sales fell by 36% YoY mainly on account of restructuring of operations in Brazil which now have been concluded. Europe, however, posted an impressive performance with sales growing by 82% YoY. This was on account of 3 products launched in the Czech Republic and Slovakia. India also did well to log in a growth rate of 18% YoY due to strong performance of its power brands and launch of 5 products during the quarter. Performance of the semi-regulated markets, however, was subdued at 9% YoY. Overall, India and Europe were the main contributors to the growth of the specialty business during the quarter.

    Consolidated business snapshot
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Generics business            
    US 2,104 1,886 -10.3% 5,774 5,378 -6.9%
    Latin America (Argentina) 110 76 -31.1% 324 263 -19.0%
    Europe 41 66 60.7% 73 202 176.7%
    API 527 776 47.3% 1,467 1,925 31.2%
    Total generics business (i) 2,782 2,804 0.8% 7,639 7,767 1.7%
    Speciality business            
    Latin America (Brazil & others) 437 280 -35.8% 1,311 1,015 -22.6%
    Semi reulated markets (SRM) 833 906 8.7% 1,932 2,494 29.1%
    Europe 193 351 82.2% 612 904 47.6%
    India 1,568 1,843 17.5% 4,525 5,345 18.1%
    Total speciality business (ii) 3,032 3,380 11.5% 8,381 9,757 16.4%
    Out-licensing revenue (iii) - 232   - 232  
    Total (i+ii+iii) 5,814 6,417 10.4% 16,019 17,757 10.8%

  • Revenues from the generics business failed to impress growing by a tepid 1% YoY during the quarter. Revenues from the US declined by 10% YoY during the quarter. Having said that, during the nine month period, Glenmark received 12 ANDA approvals (including 6 tentative approvals, which is an encouraging sign, given the delay in approvals that the company had to contend with in the past few quarters. Also, the company now has 49 products in the market and 50 ANDAs in various stages of approval with the US FDA. Further, out of the total 6 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$ 1.6 bn as on September 2009. While the oncology business in Argentina declined by 31% YoY, APIs recorded strong sales growth of 47% YoY and thus prevented the decline in overall sales from the generics business.

  • Operating margins fell by 6.4% during 3QFY10 largely due to an increase in raw material costs and other expenditure (as percentage of sales). As a result, operating profits fell by 11% YoY. For the nine month period, operating margins fell by nearly 5.5% resulting in the operating profits dipping by 7% YoY.

  • Glenmark’s bottomline grew by 16% YoY despite the 11% YoY decline in operating profits on account of a substantial reduction in tax expenses. These were lower on account of MAT credits received, MAT incentives on 2 of its Baddi plants, reversal of forex position as per AS-11 and deferred tax created at the subsidiary level.

What to expect?
At the current price of Rs 261, the stock is trading at 11.2 times our estimated FY12 earnings. While 9mFY10 has seen a lukewarm performance reported by the company, the scenario is expected to improve fourth quarter onwards as the businesses begin to pick up. The company's interest costs are high currently due to debt of Rs 17 bn on its books. The cash generated from the improved performance of its business will go towards paying off this debt. Besides this, the company has filed a draft prospectus with the SEBI for listing Glenmark Generics and part of the proceeds from this listing will also be used to retire debt. On the R&D front, the company continues to be in talks with global pharma majors to garner some out-licensing deals. The fact that the company was able to bag such a deal with Medicis Pharmaceuticals USA is an encouraging sign. The company’s performance so far has been in line with our estimates for the full year. We maintain our positive view on the stock from a long term perspective.

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