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Glenmark: On the path to stronger growth
Jun 23, 2010

Glenmark has announced its FY10 results. The company has reported 18% YoY and 71% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 18% YoY during FY10 led by the specialty business which grows by 28% YoY.
  • EBDITA margins improve by 2.9% due to lower staff costs and other expenditure (as percentage of sales).
  • Bottomline grows by 71% YoY due to extraordinary expenses of Rs 1.2 bn in FY09, which were not present in FY10. Excluding the same, bottomline grows by 7% YoY.


Financial performance: Consolidated snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 5,158 7,125 38.1% 21,215 25,121 18.4%
Expenditure 5,343 5,308 -0.7% 16,380 18,653 13.9%
Operating profit (EBIDTA) (186) 1,817   4,835 6,468 33.8%
Operating profit margin (%) -3.6% 25.5%   22.8% 25.7%  
Other income 847 38 -95.5% 1,455 217 -85.1%
Interest 719 378 -47.5% 1,405 1,640 16.8%
Depreciation 296 169 -42.9% 1,027 1,206 17.5%
Profit before tax (354) 1,308 -469.8% 3,858 3,839 -0.5%
Extraordinary item (1,170)     (1,170) -  
Tax (316) 282 -189.1% 754 529 -29.9%
Profit after tax/ (loss) (1,207) 1,026   1,935 3,310 71.1%
Net profit margin (%) -23.4% 14.4%   9.1% 13.2%  
No. of shares (m)       250.5 269.8  
Diluted earnings per share (Rs)         12.3  
P/E ratio (x)         22.7  

What has driven performance in FY10?
  • Glenmark’s overall revenues grew by 18% YoY during the year led by the speciality business which grew by 28% YoY (excluding the out-licensing revenues). As far as the speciality business is concerned, in Latin America (excluding Argentina), sales fell by 14% YoY mainly on account of restructuring of operations in Brazil which now have been concluded. Europe, however, posted an impressive performance with sales growing by 37% YoY led by product launches in Czech Republic, Slovakia and Romania. India also did well to log in a growth rate of 23% YoY due to strong performance of its power brands and new product launches during the year. Semi-regulated markets also did very well to grow by a healthy 64% YoY. Most of this strong growth came about in the fourth quarter of the year. Overall, barring Latin America, all other businesses contributed to the growth of the specialty business during the year.

    Consolidated business snapshot
    (Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
    Generics business            
    US 1,563 1,852 18.5% 7,338 7,230 -1.5%
    Latin America (Argentina) 76 80 5.5% 400 343 -14.3%
    Europe 74 98 32.0% 147 299 103.7%
    API 505 703 39.1% 1,972 2,627 33.2%
    Total generics business (i) 2,219 2,733 23.2% 9,857 10,500 6.5%
    Speciality business            
    Latin America (Brazil & others) 269 346 28.7% 1,580 1,361 -13.9%
    Semi reulated markets (SRM) 423 1,370 223.9% 2,355 3,864 64.1%
    Europe 384 459 19.7% 996 1,363 36.8%
    India 1,617 2,184 35.1% 6,142 7,529 22.6%
    Total speciality business (ii) 2,692 4,359 61.9% 11,073 14,116 27.5%
    Out-licensing revenue (iii) - -   - 232  
    Total (i+ii+iii) 4,911 7,091 44.4% 20,930 24,849 18.7%

  • Revenues from the generics business failed to impress growing by a tepid 6.5% YoY during the year. Revenues from the US declined by 2% YoY. Having said that, during the year, Glenmark received 16 ANDA approvals (including 6 tentative approvals), which is an encouraging sign, given the delay in approvals that the company had to contend with especially in the previous fiscal. Also, the company now has 53 products in the market and 50 ANDAs in various stages of approval with the US FDA. Further, out of the total 11 potential FTF Para IV applications filed by the company, Glenmark is the sole first filer on 4 products. These 4 products together had sales of around US$ 1.6 bn as on March 2010. While the oncology business in Argentina declined by 14% YoY, APIs recorded strong sales growth of 33% YoY and thus supported the growth in overall sales from the generics business.

  • Operating margins improved by 2.9% during FY10 largely due to lower staff costs and other expenditure (as percentage of sales). As a result, operating profits grew by a healthy 34% YoY during the year. Glenmark’s bottomline grew a robust 71% YoY largely due to extraordinary expenses of Rs 1.2 bn incurred in FY09, which were not present this year. Thus, on excluding the same, growth in the bottomline was subdued at 7% YoY. This growth was much lower than the growth in operating profits primarily due to the 85% YoY reduction in other income.

What to expect?
At the current price of Rs 279, the stock is trading at 10.4 times our estimated FY13 earnings. Most of Glenmark’s businesses started performing well in 4QFY10, which is an encouraging sign as it highlights the fact that the business environment is improving. The company’s interest costs are high currently due to debt of Rs 17 bn on its books. The cash generated from the improved performance of its business will go towards paying off this debt. Besides this, the company has filed a draft prospectus with the SEBI for listing Glenmark Generics and part of the proceeds from this listing will also be used to retire debt.

On the R&D front, the company continues to be in talks with global pharma majors to garner some out-licensing deals. The fact that the company was able to bag such a deal with Medicis Pharmaceuticals USA is an encouraging sign. We maintain our positive view on the stock from a long term perspective.

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