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Glenmark: US witnesses muted growth - Views on News from Equitymaster

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Glenmark: US witnesses muted growth
Jul 28, 2014

Glenmark has announced its 1QFY15 results. The company has reported 20.1% YoY growth in sales and 43.6% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 20.1% YoY during the quarter led by growth in the domestic and RoW markets.
  • Operating margins improve by 3% during the quarter to 23% led by licensing income received from Salix.
  • Bottomline grows by 43.6% YoY during 1QFY15 despite the surge in depreciation expenses.

Financial performance: A snapshot
(Rs m) 1QFY14 1QFY15 Change
Net sales 12,382 14,869 20.1%
Expenditure 9,905 11,446 15.6%
Operating profit (EBDITA) 2,478 3,423 38.2%
EBDITA margin (%) 20.0% 23.0%  
Other income 33 35 3.7%
Interest (net) 464 481 3.7%
Depreciation 349 651 86.6%
Profit before tax 1,698 2,326 37.0%
Tax 392 477 21.6%
Minority Interest 19 1 -97.3%
Profit after tax/(loss) 1,287 1,848 43.6%
Net profit margin (%) 10.4% 12.4%
No. of shares (m)   270.0  
Diluted earnings per share (Rs)   22.1  
Price to earnings ratio (x)*   29.4  
*based on trailing 12 months earnings

What has driven performance in 1QFY15?
  • Topline grew by 20% YoY during the quarter led by growth in domestic and RoW markets. However, the US witnessed muted growth for the quarter.

    Revenue break-up
    (Rs m) 1QFY14 1QFY15 Change
    India 3,286 3,972 20.9%
    US 4,470 4,887 9.3%
    Rest of World (RoW) 1,751 2,113 20.7%
    Europe 726 977 34.5%
    Latin America 878 1,176 33.9%
    API 1,271 1,445 13.7%
    Out-licensing income - 299  
    Total Revenues 12,382 14,869 20.1%

  • The domestic formulations segment witnessed robust growth of approximately 21% YoY. The company has ramped up share in respiratory, anti-infectives, anti diabetic, gynecology and dermatology. Among these, dermatology remains the major growth driver for the company.

  • In the exports segment, barring the US, majority of the geographies witnessed better growth. The growth in the US was impacted largely due to lack of approvals from the US FDA. Management expects lower approvals from the US in the current fiscal, however more approvals are expected in FY16. Further, the company expects to launch approx. 7-8 drugs in FY15.

  • The RoW, Europe and Latin America witnessed robust growth of above 30% YoY, on back of ramp up in market share of existing products and new launches. However, Brazil continued to witness some pressures and hence the growth from this geography was muted. The approval rate in Brazil is still quite low.

  • Company also received income from Salix which is approx. Rs 300 m for the quarter.

  • Operating margins improved by around 3% due to Salix income received during the quarter. Excluding this income, operating margins improved by 1.4% YoY for the quarter. The company spent 9.2% towards R&D for the quarter.

  • Led by the 38% YoY growth in operating profits, bottomline grew by 43.6% YoY during 1QFY15 despite the surge in depreciation expenses.
What to expect?

At the current price of Rs 638, the stock is trading at a price to earnings multiple of 14.4 times our estimated FY17 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. There are various niche launches scheduled for launch in the US. These products are largely Para IVs and expected to be launched under low competition.

The Indian business continues to witness robust growth. Going forward also this segment is expected to put up a good performance on the back of increased market share. The overall growth is expected to be healthy for the next 2-3 years. However, the debt is high and is expected to remain at the current levels atleast for the current fiscal and therefore remains an area of concern. Taking all this into account and also based on current valuations, we recommend a HOLD rating on the stock.

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