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Glenmark: Robust all round growth
May 15, 2012

Glenmark announced fourth quarter results of financial year 2011-2012 (4QFY12). The company reported a 34% YoY and 33% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 34% YoY during 4QFY12 led by the robust performance of both its speciality and generics businesses.
  • EBDITA margins substantially improve by 9.6% to 20.8% due to lower staff costs and other expenditure (as percentage of sales).
  • PBT growth at 43% YoY is lower than the growth in operating profits due to considerable reduction in other income.
  • Net profits grow by 33% YoY during the quarter.

Financial performance: Consolidated snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 7,956 10,662 34.0% 29,536 40,217 36.2%
Expenditure 7,063 8,444 19.6% 23,568 31,746 34.7%
Operating profit (EBIDTA) 893 2,218 148.4% 5,968 8,471 41.9%
Operating profit margin (%) 11.2% 20.8%   20.2% 21.1%  
Other income 903 23 -97.4% 1,398 171 -87.7%
Interest 439 410 -6.6% 1,605 1,466 -8.7%
Depreciation 243 236 -2.7% 947 979 3.4%
Profit before tax 1,114 1,595 43.1% 4,815 6,198 28.7%
Exceptional items - -   - (1,317)  
Tax (32) 73   237 238 0.3%
Profit after tax/ (loss) 1,146 1,522 32.8% 4,578 4,643 1.4%
Net profit margin (%) 14.4% 14.3%   15.5% 11.5%  
No. of shares (m)       270.3 270.5  
Diluted earnings per share (Rs)*         22.0  
P/E ratio (x)         16.4  
* on a trailing 12 months basis & excluding extraordinary items

What has driven performance in FY12?
  • Glenmark’s overall revenues grew by 36% YoY during the year largely led by the robust performance of both its generics and speciality businesses. With respect to the speciality business, there was good growth across all geographies. Growth in India was led by strong performance of its dermatology, cardiac and respiratory segments. Latin America did well led by Brazil, Venezuela, Mexico, Caribbean and Peru. Growth in Europe was on account of new product launches in the Czech Republic, Romania and Poland. The rest of the regions such as Russia, CIS markets and Asia also recorded healthy sales growth thereby bolstering the overall growth of the speciality segment. During the year, Glenmark received milestone payment of Rs 2.5 bn as it out-licensed its monoclonal antibody (GBR 500) to Sanofi in June 2011.

    Consolidated business snapshot
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Generics business            
    US 2,243 3,435 53.1% 8,352 12,137 45.3%
    Latin America 167 37 -78.1% 401 142 -64.5%
    Europe 134 364 170.6% 544 1,031 89.7%
    API 618 850 37.5% 2,767 3,094 11.8%
    Total generics business (i) 3,163 4,685 48.1% 12,063 16,405 36.0%
    Speciality business            
    Latin America (Brazil & others) 501 714 42.6% 1,919 2,869 49.5%
    Semi regulated markets (SRM) 1,463 1,828 24.9% 4,070 5,926 45.6%
    Europe 517 720 39.3% 1,528 1,976 29.4%
    India 2,160 2,682 24.2% 8,447 10,021 18.6%
    Total speciality business (ii) 4,640 5,944 28.1% 15,963 20,792 30.3%
    Out-licensing revenue (iii) - -   895 2,535 183.2%
    Others 147 30 -79.8% 569 474 -16.8%
    Total (i+ii+iii) 7,951 10,659 34.1% 29,491 40,206 36.3%

  • Revenues from the generics business grew by 36% YoY during the year largely led by the US and Europe. Revenues from the US grew by a healthy 45% YoY led by existing portfolio and new product launches. 12 new products were launched in this market during the year and consisted of a mix of semi-solid preparations, oral-contraceptives, extended release and immediate release items. The company’s marketing portfolio in the US as at the end of March 2012 consisted of 78 generic products. Europe also grew at a healthy rate through increased product sales, licensing revenues and expansion of its presence through distribution partners in more European countries.

  • Operating margins improved by 0.9% during the year to 21.1% largely due to lower raw material and staff costs (as percentage of sales). As a result, operating profits grew by a healthy 42% YoY. Having said that, growth in profit before tax (PBT) was toned down due to substantial reduction in other income. Net profits grew by a mere 1% during the year largely due to the extraordinary expense of Rs 1.3 bn. This was related to the final royalty payment made to Paul Capital Partners for developing dermatology products for the US market. On excluding the same, growth in net profits stood at a robust 30% YoY.

What to expect?
At the current price of Rs 361, the stock is trading at 13.6 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. The 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 our positive view on the stock from a long term perspective.

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