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Glenmark: US at the forefront
Jul 29, 2008

Performance summary
  • Revenues grow by a robust 31% YoY during 1QFY09 fuelled by strong growth of the US, European and domestic businesses.
  • EBDITA margins expand by 1.4% due to a considerable fall in purchase of finished goods and other expenditure (as percentage of sales).
  • Strong performance at the operating level, buoyant other income and lower interest costs result in a quantum jump in the bottomline (up 102% YoY).


Financial performance: Consolidated snapshot
(Rs m) 1QFY08 1QFY09 Change
Net sales 3,514 4,608 31.2%
Expenditure 2,489 3,199 28.5%
Operating profit (EBIDTA) 1,025 1,410 37.5%
Operating profit margin (%) 29.2% 30.6%  
Other income 25 109 339.9%
Interest 144 155 8.1%
Depreciation 143 215 50.4%
Profit before tax 763 1,148 50.5%
Tax 191 (5)  
Profit after tax/ (loss) 572 1,154 101.9%
Net profit margin (%) 16.3% 25.0%  
No. of shares (m) 242.1 250.1  
Diluted earnings per share (Rs)*   27.6  
P/E ratio (x)*   24.2  
(* on a trailing 12-months basis)

What has driven performance in 1QFY09?
  • Glenmark’s topline on a consolidated basis grew by 31% YoY during 1QFY09 led by superlative performance of its US, European and domestic businesses. Revenues from the US markets (which form part of Glenmark Generics Ltd.) ballooned by 131% YoY largely due to a ramp up in the number of products launched. Glenmark has now launched 33 products in the US market. As on date, the company has over 35 ANDAs undergoing USFDA approval. Besides this, the company has a total of 4 potential first to file Para IV challenges so far, the market size of which has been pegged at US$ 4.1 bn. The company’s strategy also involves launching niche products with high barriers to entry and lesser competition and is thus focusing on the areas of dermatology, controlled substances, hormones and oncology going forward. Glenmark aims to launch 20 products in the US market and file for over 30 ANDAs in FY09.

  • The performance of the Latin American region was mixed. Revenues from the Argentina oncology business (also a part of Glenmark Generics Ltd.) registered a 14% YoY growth during the quarter. The company has made a foray in Ecuador, Uruguay, Peru and Bolivia as well and plans to use Argentina as a hub to launch oncology products in these countries. The other markets of Latam (like Brazil and Mexico) are classified under the speciality business of Glenmark. Revenues from this business fell substantially by 36% YoY. This part of the business is undergoing a restructuring exercise, wherein Glenmark is planning to discontinue its focus on the hospital business and move towards retail. The company expects sales to pick up going forward. Overall, the company filed 12 products for approval with the regulatory authorities and received 1 product approval during the quarter.

    Consolidated business snapshot
    (Rs m) 1QFY08 1QFY09 Change
    Generics business      
    US 826 1,909 131.0%
    Latin America (Argentina) 62 71 14.0%
    API 395 426 7.8%
    Total generics business (i) 1,284 2,406 87.4%
    Speciality business      
    Latin America (Brazil & others) 490 312 -36.4%
    Semi reulated markets (SRM) 446 394 -11.7%
    Europe 93 124 32.8%
    India 1,281 1,429 11.6%
    Total speciality business (ii) 2,310 2,259 -2.2%
    Out-licensing revenues (iii) - -  
    Total (I+ii+iii) 3,594 4,665 29.8%

  • As far as the other markets are concerned, sales from the semi-regulated markets fell by 12% YoY largely due to the pile up of inventories at the distributor level. Having said that, the secondary sales reported a robust growth. While the Russian operations did well, Glenmark also strengthened its operations in Malaysia and Philippines. Besides this, Glenmark has also initiated the process of building front ends in China and Australia. Revenues from India grew by 12% YoY and were aided by the dermatology, respiratory and cardiovascular segments. The company launched 12 new products in the domestic region during the quarter.

  • Revenues from the European region clocked an impressive 33% YoY growth. Besides its presence in the Czech Republic through the acquisition of Medicamenta, the company established a new company in Poland and acquired a portfolio of seven branded products from Actavis. While these products will generate sales to the tune of US$ 15 m in FY09, the Polish subsidiary has also lined up 4-5 product launches by the end of FY09 in the cardiovascular and CNS segments. Overall the company expects the Central and Eastern European region to be the key growth driver as far as its European operations are concerned.

  • Operating margins, on a consolidated basis, expanded by 1.4% during 1QFY09, largely due to a sizeable fall in purchase of traded goods, and other expenditure (as percentage of sales). Strong performances at both the topline and the operating level, buoyant other income and lower interest costs resulted in the superlative growth in the bottomline (up 102% YoY).

What to expect?
At the current price of Rs 667, the stock is trading at a multiple of 15.9 times our estimated FY11 earnings (excluding the out-licensing deals). Glenmark’s presence in the regulated markets, especially the US, has been gaining scale and the company’s strategy of increasing focus on niche products besides ramping up product filings is expected to give a further boost to its US generics business going forward. Similarly, the company has embarked on a strategy of increasing its presence in the Latam and semi-regulated markets as well, which will further drive topline growth. Thus, the international business is expected to gain significant traction going forward.

On the R&D front, the company has three molecules in Phase II B trials (Oglemilast, Melogliptin and GRC 6211) and the potential peak sales of each of these products (if they are commercialised) could be in the range of US$ 1 bn to US$ 3 bn. The company has restructured its business by forming two companies Glenmark Pharmaceuticals Ltd and Glenmark Generics Ltd (the latter will be a 100% subsidiary of the former). Glenmark plans to list the generics company on the bourses during FY09.

Major concerns for Glenmark would be any setback on the R&D front, which could result in a halt in milestone payments. The company has already witnessed such an event with Merck choosing not to develop Glenmark’s anti-diabetic molecule ‘Melogliptin’.

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