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Glenmark Pharma: Adoption of IFRS - Views on News from Equitymaster
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Glenmark Pharma: Adoption of IFRS
May 12, 2011

Glenmark Pharma has declared its FY11 results. The company has reported a 17.6% YoY growth in net sales and a 38.3% growth in profit after tax.

Performance summary
  • Net sales increase by 17.6% YoY in 4QFY11 led by the growth in Generics and Specialty business
  • Operating margins (EBITDA) decrease from 25.7% to 20.2% on account of inflated employee costs as ESOP adjustments and increased other expenditure (as a % of sales).
  • Profit after tax grows by 38.3% YoY due to reclassified other income reported for FY11 under IFRS


Financial performance: A snapshot
(Rs m) I-GAAP IFRS Change
Net sales 25,121 29,536 17.6%
Expenditure 18,653 23,568 26.4%
Operating profit (EBDITA) 6,468 5,968 -7.7%
EBDITA margin (%) 25.7% 20.2%  
Other income 217 1,359 525.6%
Interest (net) 1,640 1,566 -4.6%
Depreciation 1,206 947 -21.5%
Profit before tax 3,839 4,816 25.4%
Exceptional items - -  
Forex loss/(gain)      
Tax 529 237  
Profit after tax/(loss) 3,310 4,578 38.3%
Net profit margin (%) 13.2% 15.5%  
No. of shares (m)   270.3  
Diluted earnings per share
(Rs) before extraordinary items
  16.8  
Price to earnings ratio (x)   17.0  

What has driven performance in FY11?
  • The company's net sales have gone up by 17.6% YoY during FY11. But as part of the transition to IFRS, sales reported for FY 2010-11 do not include VAT/other taxes while the previous year sales numbers are inclusive of VAT/other taxes. So in effect, the net sales increase is higher than what it looks like. The generics business grew by 20% to Rs 12,633 m led by the US, Europe and the API business. The Europe business almost doubled from its lower base to Rs 544 m. The Speciality business grew by 17.0% to Rs 16,858 m led by the new product launches in the Latin American market and licensing income from Sanofi.

    Segmental snapshot
    In million 2009-10 2010-11 Change
    Speciality Business 14,348 16,858 17.5%
    Total 14,116 15,963 13.1%
    India 7,529 8,447 12.2%
    Rest of the World (ROW) 3,864 4,070 5.3%
    Latin America 1,361 1,919 41.0%
    Europe 1,363 1,528 12.1%
    Out-Licensing Revenue 232 895 285.2%
    Generics Business 10,500 12,633 20.3%
    US 7,230 8,352 15.5%
    Europe 299 544 81.6%
    Latin America 343 401 16.9%
    API 2,627 3,337 27.0%
    Consolidated Revenue 24,848 29,491 18.7%

  • Operating margins (EBITDA) decreased by 5.2% (as a % of sales) to 20.2% with the changes in the accounting standard to IFRS and increase in other expenditure. With the adoption of IFRS, the employee cost now includes the liability on account of the ESOP account. This deflates the EBITDA margins by 2% (as a % of sales). Further, the other expenditure (as a % of sales) also saw upwards pressure and decreased the margins. The R&D costs for the year stood at Rs 1,400 m.

  • Profit after tax grew by 38.3% YoY in FY11. This is due to the change of accounting standard that led to a five-fold jump in the other income which now stands at Rs 1,359 m. The biggest contributor to this is the reclassification of Rs 350 m export credit that was previously a part of the net sales. In addition to that, the depreciation decreased due to the write-offs of a few intangibles as per the IFRS. Similarly, the bank charges are now a part of the interest cost and not the operating expenses.

What to expect?
At the price of Rs 271, Glenmark is trading at 10.6 times estimated FY13 earnings. Going forward, the key growth drivers for it 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 recently completed one out-licencing deal with Sanofi for which it also received an adequate income. Overall, we maintain our view on the stock from a long term basis. (Research Pro subscribers can view the recommendation here)

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