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Glenmark: Led by the US - Views on News from Equitymaster

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Glenmark: Led by the US
Apr 28, 2008

Performance summary
  • Revenues grow by a robust 63% YoY during FY08 fuelled by strong growth of the US, Latin American (Latam), domestic and API businesses.
  • EBDITA margins expand by 5.6% due to a considerable fall in staff costs and other expenditure (as percentage of sales).

  • Despite higher tax, interest and depreciation expenses, net profits grow by 104% YoY led by strong performance at the operating level and healthy other income.

Financial performance: Consolidated snapshot
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 3,486 5,727 64.3% 12,165 19,783 62.6%
Expenditure 2,493 3,494 40.1% 7,902 11,753 48.7%
Operating profit (EBIDTA) 993 2,233 124.9% 4,263 8,031 88.4%
Operating profit margin (%) 28.5% 39.0%   35.0% 40.6%  
Other income 73 341 366.1% 157 446 183.9%
Interest 127 160 26.2% 384 637 65.9%
Depreciation 120 242 101.6% 423 716 69.4%
Profit before tax 819 2,172 165.2% 3,613 7,124 97.2%
Tax 197 (17)   513 811 58.2%
Profit after tax/ (loss) 622 2,190 252.0% 3,101 6,313 103.6%
Net profit margin (%) 17.8% 38.2%   25.5% 31.9%  
No. of shares (m)       240.1 248.7  
Diluted earnings per share (Rs)*         25.4  
P/E ratio (x)*         25.0  
(* on a trailing 12-months basis)

What has driven performance in FY08?
  • Glenmark’s topline on a consolidated basis grew by 63% YoY during FY08 led by superlative performance of its US, Latin America (Latam), domestic and API businesses. Revenues from the US markets (which form part of Glenmark Generics Ltd.) ballooned by 156% YoY largely due to a ramp up in the number of products launched. Glenmark has now launched 28 products in the US market, out of which, the company had a shared exclusivity for ‘Trileptal’ during the year, which was instrumental in augmenting revenues. Till FY08, the company had filed a total of 61 ANDAs and envisages filing 37 and 39 ANDAs in FY09 and FY10 respectively. Besides this, the company has a total of 4 potential first to file Para IV challenges so far, the market size of which has been pegged at US$ 4.1 bn. The company’s strategy also involves launching niche products with high barriers to entry and lesser competition and is thus focusing on the areas of dermatology, controlled substances, hormones and oncology going forward.

  • In Latam, revenues from the Argentina oncology business (also a part of Glenmark Generics Ltd.) registered a 17% YoY growth during the fiscal. The company has chalked out plans of entering 3 to 4 new countries and file over 90 products in the oncology space during the current fiscal. Glenmark plans to use Argentina as a hub to launch oncology products in the other countries as well. The other markets of Latam (like Brazil and Mexico) will fall under the speciality business of Glenmark. This business reported a superlative 65% YoY growth in revenues with the key contributors being Brazil, Venezuela and Columbia. Overall, the company launched 25 products and registered over 250 products in the Latam markets during FY08.

    Consolidated business snapshot
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Generics business            
    US 803 1,963 144.3% 2,208 5,640 155.5%
    Europe - 9   - 9  
    Latin America (Argentina) 56 60 8.4% 265 310 16.8%
    API 356 591 66.0% 1,318 1,959 48.6%
    Total generics business (i) 1,215 2,623 115.9% 3,791 7,919 108.9%
    Speciality business            
    Latin America (Brazil & others) 620 433 -30.2% 1,155 1,918 66.0%
    Semi reulated markets (SRM) 454 533 17.2% 1,884 2,046 8.6%
    Europe - 83   - 369  
    India 1,292 1,541 19.3% 4,290 5,454 27.1%
    Total speciality business (ii) 2,367 2,590 9.4% 7,329 9,785 33.5%
    Out-licensing revenues (iii) - 610   1,395 2,403 72.2%
    Total (I+ii+iii) 3,582 5,822 62.6% 12,515 20,107 60.7%

  • As far as the other markets are concerned, while the semi-regulated markets grew by a relatively slower 9% YoY, revenues from India and the API business grew by 27% YoY and 49% 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 its revenues during the year.

  • Operating margins, on a consolidated basis, expanded by 5.6% during FY08, largely due to a sizeable fall in purchase of traded goods, staff costs and other expenditure (as percentage of sales). Strong performances at both the topline and the operating level led to the superlative 104% YoY growth in the bottomline. This robust growth was attained despite higher tax, interest and depreciation expenses.

What to expect?
At the current price of Rs 635, the stock is trading at a multiple of 25.9 times our estimated FY10 earnings (excluding the out-licensing deals). Glenmark’s presence in the regulated markets, especially the US, has been gaining scale and the company’s strategy of increasing focus on niche products besides ramping up 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, the company has three molecules in Phase II B trials (Oglemilast, Melogliptin and GRC 6211) and the potential peak sales of each of these products (if they are commercialised) could be in the range of US$ 1 bn to US$ 3 bn. The company has restructured its business by forming two companies Glenmark Pharmaceuticals Ltd and Glenmark Generics Ltd (the latter will be a 100% subsidiary of the former). Glenmark plans to list the generics company on the bourses during FY09. Given the company’s strong performance during FY08, we shall have to accordingly revise our estimates for the full year.

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