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Glenmark: Sales grow, profits de-grow
Feb 23, 2012

Glenmark Pharma has declared its third quarter financial results for 2011-2012 (3QFY12) results. The company has reported a 37.7% YoY growth in net sales and a 46.7% YoY drop in profit after tax.

Performance summary
  • Net sales increase by 37.7% YoY led by strong growth in Generics and Specialty business
  • Operating margins (EBITDA) decrease by 790 bps (7.9%) to 10% on account of lower contribution from domestic business, higher R&D costs and significant forex losses.
  • Profit after tax falls by 46.7% YoY on account poor performance at the operating level and fall in other income.


Financial performance: A snapshot
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Net sales 7,491 10,313 37.7% 21,580 29,555 37.0%
Expenditure 6,153 9,284 50.9% 16,505 23,302 41.2%
Operating profit (EBIDTA) 1,339 1,029 -23.1% 5,075 6,253 23.2%
EBDITA margin (%) 17.9% 10.0%   23.5% 21.2%  
Other income 241 105 -56.4% 495 148 -70.1%
Depreciation 246 231 -5.8% 704 742 5.5%
Interest 396 357 -9.8% 1,166 1,056 -9.4%
Profit before tax 938 546 -41.8% 3,701 4,603 24.4%
Tax 73 84 14.9% 269 165 -38.5%
Exceptional Gain / (Loss) - -   - (1,317)  
Profit after tax/(loss) 865 462 -46.7% 3,432 3,121 -9.1%
Net profit margin (%) 11.5% 4.5%   15.9% 10.6%  
No. of shares (m) 270 270   270 270  
Diluted earnings per share (Rs) 3.2 1.7   12.7 11.5  
Price to earnings ratio (x)*   19.5        
*On trailing 12 month basis

What has driven performance in 3QFY12?
  • Glenmark's net sales grew by 37.7% YoY during the quarter. While the growth of the speciality business stood at 34% YoY, the generics business grew by 45% YoY. Within the speciality business, ROW, Latin America and Europe grew quite well. However, the domestic business growth of 11% YoY was not satisfactory. This was an effect of company's efforts to correct the inventory levels in the supply chain. Within the generics business, the US and the European markets showed good performance with growth of 56% YoY and 58% YoY respectively.

    Revenue Break-up

    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Speciality Business            
    India 2,288 2,547 11.3% 6,287 7,340 16.7%
    Rest of the World (ROW) 1,062 1,571 48.0% 2,606 4,097 57.2%
    Latin America 559 825 47.5% 1,418 2,155 52.0%
    Europe 448 664 48.3% 1,011 1,257 24.3%
    Total 4,357 5,607 28.7% 11,323 14,849 31.1%
    Out-Licensing Revenue 0 238   895 2,535  
    Total Speciality Business 4,357 5,845 34.2% 12,218 17,384 42.3%
    Generics Business            
    US 2,041 3,190 56.3% 6,109 8,702 42.5%
    Europe 194 307 57.9% 409 668 63.1%
    Latin America 43 36 -17.2% 233 106 -54.7%
    API 728 836 14.8% 2,149 2,244 4.4%
    Total Generics Business 3,006 4,368 45.3% 8,900 11,720 31.7%
    Other 124 97 -21.3% 422 444 5.2%
    Consolidated Revenue 7,486 1,0311 37.7% 21,540 29,548 37.2%

  • Operating margins (EBITDA) decreased by 790 bps (7.9%) to 10% on account of lower contribution from domestic business, higher R&D costs and significant forex losses. The domestic business for Glenmark has much higher margins as compared to exports. Glenmark also had a forex loss of Rs 1,020 m which impacted the margins badly. Increase in R&D costs further put pressure on margins.

  • Profit after tax fell by 46.7% YoY on account of poor performance at the operating level and reduction in other income.

What to expect?
At the price of Rs 305, Glenmark is trading at 11.5 times our estimated FY14 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. 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 recently completed one out-licencing deal with Sanofi for which it also received an adequate income. Indian business is expected to show good performance and this can give reasonable boost to its profitability. We have also seen improvement on the balance sheet side with its working capital cycle improving and the debt reducing. Overall, we maintain a HOLD view on the stock from a long term perspective.

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