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Glenmark: Growth from all the corners
May 8, 2013

Glenmark has announced its 4QFY13 results. The company has reported 25% YoY growth in sales and an 11% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 25% YoY during the quarter led by growth in both its specialty and generics businesses.
  • Operating margins decline by 1.8% due to forex loss and higher other expenses.
  • Bottomline grows by 11% YoY during 4QFY13, inspite of lower tax expenses. PAT is impacted due to increase in depreciation charges and higher other operating expense.

Financial performance: A snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 10,659 13,354 25.3% 40,206 50,123 24.7%
Expenditure 8,444 10,811 28.0% 31,746 40,024 26.1%
Operating profit (EBDITA) 2,214 2,543 14.8% 8,460 10,100 19.4%
EBDITA margin (%) 20.8% 19.0%   21.0% 20.2%  
Other income 27 (46)   182 107 -40.9%
Interest (net) 410 436 6.4% 1,466 1,600 9.2%
Depreciation 236 318 34.6% 979 1,270 29.8%
Profit before tax 1,595 1,743 9.3% 6,198 7,337 18.4%
Exceptional expense - -   1,317 -  
Tax 73 46 -37.2% 238 1,107 365.5%
Minority Interest 19 30   40 83 108.6%
Profit after tax/(loss) 1,504 1,667 10.9% 4,603 6,147 33.5%
Net profit margin (%) 14.1% 12.5% -1.6% 11.4% 12.3%  
No. of shares (m)         270.0  
Diluted earnings per share (Rs)         22.8  
Price to earnings ratio (x)*         23.4  
* On a trailing 12-months basis
What has driven performance in 4QFY13?
  • Topline grew by 25% YoY during the quarter led by growth in both its specialty and generics businesses.

    Consolidated business snapshot
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Generics business
    US 3,435 4,291 24.9% 12,137 16,887 39.1%
    Europe 364 591 62.4% 1,031 1,707 65.5%
    Latin America 37 45 22.8% 142 189 32.4%
    API 850 939 10.4% 3,094 3,976 28.5%
    Total generics (i) 4,685 5,866 25.2% 16,405 22,759 38.7%
    Specialty business
    India 2,682 3,550 32.4% 10,021 13,096 30.7%
    RoW 1,828 2,213 21.1% 5,926 8,122 37.1%
    Latin America 714 748 4.7% 2,869 3,279 14.3%
    Europe 720 901 25.2% 1,976 2,017 2.0%
    Total specialty business (ii) 5,944 7,413 24.7% 20,792 26,514 27.5%
    Out-licensing income (iii) - -   2,535 493 -80.6%
    Others (iv) 30 77 157.2% 474 357 -24.7%
    Total (i)+(ii)+(iii)+(iv) 10,659 13,356 25.3% 40,206 50,123 24.7%

  • In the generics business, the US business recorded a growth of 25% YoY, and in constant currency terms growth was at 17%. The company has 53 products awaiting approval. The launch of Mupirocin also helped ramp up the revenues. During the current quarter Glenmark filed 7 new ANDAs and for the full year, the total ANDAs filed were 18. EU generics witnessed robust growth of 62% YoY on the back of new launches. The constant currency growth was at 50% for this segment. The company has filed four new products with the European regulatory. Going forward, large part of the company's growth is expected to come from the US business. Glenmark also intends to continue its focus on niche launches as approximately 50% of the ANDA filings are low competition products. The company continues to focus on dermatology, oral contraceptives and oncology segments in the US.

  • In the Specialty segment, India witnessed robust growth of 32% YoY for 4QFY13 which is above the industry growth rate. As per the IMS data, the market share of the company has gone up to 1.8% during the quarter from 1.7% last year for the same period. The company has continued to witness increase in the market share for all its major therapies viz., dermatology, cardiac, respiratory, anti infectives and gynecology. The RoW markets grew by 21% YoY, while Russia witnessed robust growth of 59% for the quarter. The company's growth (in constant currency terms at 38.5%) in Russia was above the industry growth of 13%. During the quarter, the company launched OTC TV campaign - Candid brand. This helped it generate better revenues from this product. The other geographies viz., Ukraine, Kazakhstan witnessed above 100% growth during the quarter. LATAM geography witnessed muted growth of 5% for the quarter. In the constant currency terms growth was flat. The devaluation in the Venezuelan currency impacted the performance in this region. Even Brazil continued to remain subdued during the quarter. Going forward, the company expects Brazil revenues to ramp up on the back of new filings and approvals.

  • The API segment witnessed growth of 10% for the quarter. The Japanese regulatory authority has approved Glenmark's Ankleshwar API facility. During FY13, 7 new DMFs (Drug master file) were filed including several first DMFs targeting first-to-file (FTFs) in the US. In European markets too, 3 new DMF filings were done. Glenmark will soon start API supply for Crofelemer to its partner from FY14.

  • On the R&D front, R&D expenditure for the quarter was Rs 920 m amounting to 6.9% of net sales for the quarter. Glenmark has guided for a run rate of 8.5% of sales for the upcoming period. It is looking to focus more on US filings for the upcoming period and hence most of the incremental R&D expenses will be spent towards new filings in the US.

  • Operating margins declined by 1.8% during the quarter. This was largely attributed to higher other expenses and MTM forex loss of Rs 150 m. Other expenses increased due to GDUFA fees, high advertising expenditure due to the OTC launch in Russia and increase in marketing and promotion expenditure.

  • Bottomline grew by 11% YoY during 4QFY13, inspite of lower tax expenses. PAT was impacted due to increase in depreciation charges and higher other operating expense. Going forward, the company expects tax rate to hover in range of 15%-17% for the next 2-3 years.

    Guidance

  • Topline guidance for FY14 is 20%. Both the domestic and the US markets are expected to grow by 18-20%.

  • EBITDA, excluding licensing income, will be approximately Rs 12.25 bn.

  • Net debt will come down from the current level of Rs 21.4 bn.

  • For FY14, the company has guided for capex of Rs 3-3.5 bn.

  • Net working capital days will be around 105-115 days.

    Financial highlights

  • Total debt: For FY13, gross debt was Rs 27.5 bn of which includes Rs 19.2 is long term debt, Rs 3.7 bn is short term debt and Rs 4.6 bn is included in other current liabilities. The cash on hand is Rs 6 bn.

  • Capex: Capex for FY13 was Rs 3.5 bn. This included capex for Crofelemer facility which was Rs 1.35 bn.

  • Net working capital: The net working capital cycle for FY13 was 106 days as compared to 121 days and 163 days in FY12 and FY11 respectively.

What to expect?
At the current price of Rs 534, the stock is trading at a price to earnings multiple of 12.4 times our estimated FY16 earnings. Going forward, the key growth drivers for the company will be the US, India, and Latin America. In US especially, its focus on a niche product portfolio will augur well for the company. The Indian business has witnessed robust growth in FY13. Going forward also this segment is expected to show good performance on the back of increased market share. We have also seen improvement on the balance sheet side with its working capital cycle improving and the debt reducing. The company is expecting trial data for its R&D pipeline in next 12-18 months and is also looking out for licensing partners for its pipeline. Overall, we maintain our positive view on the stock from a long term perspective. Based on current valuations we recommend a HOLD rating on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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