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Glenmark: Benefits from out-licensing
Jul 27, 2010

Glenmark has announced its 1QFY11 results. The company has reported 27% YoY and 191% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 27% YoY during 1QFY11 largely led by the out-licensing income of Rs 895 m.
  • EBDITA margins improve considerably by 11% due to lower raw material costs and other expenditure (as percentage of sales).
  • Strong performance at the operating level coupled with reduction in interest costs causes the bottomline to grow by 191% YoY.


Financial performance: Consolidated snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 5,487 6,963 26.9%
Expenditure 4,223 4,623 9.5%
Operating profit (EBIDTA) 1,264 2,341 85.2%
Operating profit margin (%) 23.0% 33.6%  
Other income 25 116 354.6%
Interest 438 277 -36.7%
Depreciation 312 328 5.3%
Profit before tax 540 1,851 243.0%
Tax 5 296  
Profit after tax/ (loss) 535 1,555 191.0%
Net profit margin (%) 9.7% 22.3%  
No. of shares (m) 250.6 269.9  
Diluted earnings per share (Rs)*   16.0  
P/E ratio (x)   18.1  
* on a trailing 12 months basis

What has driven performance in 1QFY11?
  • Glenmark's overall revenues grew by 27% YoY during the quarter largely due to the out-licensing income that it received from Sanofi-Aventis to the tune of Rs 895 m. Thus, on excluding the same, overall revenues registered a muted 10% YoY growth. As far as the speciality business is concerned, Latin America (excluding Argentina) and India did well to enable the business to report an 8% YoY growth. Latin America grew by 21% YoY reflecting the impact of restructuring of operations in Brazil in FY11. Growth was also bolstered by the contribution from newer markets such as Mexico and Venezuela. India logged in a growth rate of 17% YoY due to strong performance of its power brands. Having said that, sales from the semi-regulated markets and Europe declined by 7% YoY and 21% YoY respectively. Revenues from Europe declined largely due to higher channel inventory in Poland.

    Consolidated business snapshot
    (Rs m) 1QFY10 1QFY11 Change
    Generics business      
    US 1,721 1,830 6.4%
    Latin America (Argentina) 68 75 10.4%
    Europe 41 104 150.8%
    API 557 627 12.6%
    Total generics business (i) 2,387 2,636 10.4%
    Speciality business      
    Latin America (Brazil & others) 335 406 21.1%
    Semi reulated markets (SRM) 786 733 -6.7%
    Europe 269 212 -21.3%
    India 1,659 1,936 16.7%
    Total speciality business (ii) 3,050 3,288 7.8%
    Out-licensing revenue (iii)   895  
    Total (i+ii+iii) 5,437 6,819 25.4%

  • Revenues from the generics business grew by 10% YoY during the quarter. Revenues from the US grew by 6% YoY. During the quarter, Glenmark filed 4 ANDAs with the US FDA. Also, the company now has 56 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. The oncology business in Argentina grew by 10% YoY during the quarter.

  • Operating margins improved by 11% during 1QFY11 largely due to lower raw material costs and other expenditure (as percentage of sales). As a result, operating profits grew by a healthy 85% YoY. However, it must be noted that the out-licensing income played a major role in enhancing revenues and profits during the quarter. And so on excluding the same, operating margins remained stable. Strong performance at the topline and operating level coupled with a reduction in interest expenses led to the 191% YoY growth in the bottomline. Interest costs were lower during the quarter on account of restructuring and repayment of debt on the company’s books.

What to expect?
At the current price of Rs 290, the stock is trading at 10.8 times our estimated FY13 earnings. Going forward, the key growth drivers for Glenmark 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 Argentinian operations as the base.

On the R&D front, the company continues to be in talks with global pharma majors to garner out-licensing deals. Overall, we maintain our positive view ResearchPro subscribers can view latest updates here on the stock from a long term perspective.

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