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Glenmark: All round performance - Views on News from Equitymaster
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Glenmark: All round performance
Aug 19, 2011

Glenmark Pharma has declared its results for the first quarter of 2011-12 (1QFY12). The company has reported a 26.8% YoY growth in net sales and a 23.2% growth in net profits. Here is our analysis of the results.

Performance summary
  • Net sales increase by 26.8% YoY led by the growth in both the Generics and Specialty business.
  • Operating margins (EBITDA) increase marginally by 0.3% to 34.2% with decrease in raw material cost offsetting the increase in other expenditure.
  • Net profits grow by 23.2% YoY. Growth in net profits is lower than that of sales as the tax increases by 171% YoY.

Financial performance: A snapshot
(Rs m) 1QFY11 1QFY12 Change
Net sales 6,848 8,685 26.8%
Expenditure 4,525 5,716 26.3%
Operating profit (EBIDTA) 2,323 2,969 27.8%
EBDITA margin (%) 33.9% 34.2%  
Other income 100 123 23.8%
Depreciation 230 264 14.5%
Interest 370 408 10.4%
Profit before tax 1,823 2,420 32.8%
Tax 118 319 171.4%
Exceptional Gain / (Loss) - -  
Forex Gain / (Loss) - -  
Minority Interest - -  
Profit after tax/(loss) 1,705 2,101 23.2%
Net profit margin (%) 24.9% 24.2%  
No. of shares (m) 270 270  
Diluted earnings per share (Rs) 6.3 7.8  
Price to earnings ratio (x)*   19  
*On trailing 12 month basis

What has driven performance in 1QFY12?
  • The company's net sales have gone up by 26.8% YoY during the quarter. The strong result was backed by 28 % YoY growth in both its generics business (contributes ~39% to sales) and specialty business (contributes ~60% to sales).
  • The domestic business grew by 20% YoY due to increase in market share of key therapeutic segments like Cardiac, Respiratory and Diabetes among others. Out licensing income received from Sanofi stood at Rs 1.1 bn.
  • Revenue break-up
    (Rs m) 1QFY11 1QFY12 Change
    Speciality Business      
    India 1878 2254 20.0%
    Rest of the World (ROW) 733 1047 42.7%
    Latin America 366 592 61.7%
    Europe 212 215 1.5%
    Total 3189 4108 28.8%
    Out-Licensing Revenue 895 1112 24.3%
    Total Speciality Business 4084 5220 27.8%
    Generics Business      
    US 1830 2512 37.2%
    Europe 80 175 117.9%
    Latin America 75 29 -61.5%
    API 634 646 1.9%
    Total Generics Business 2620 3362 28.3%
    Other 114 101 -11.4%
    Consolidated Revenue 6818 8683 27.4%

  • Operating margins (EBITDA) increased 0.3% (as a % of sales) due to lower raw material charges. The raw material costs decreased 5% YoY leading to a marginal expansion of EBITDA margins.
  • Net profits growth of 23.2% YoY was lower than the sales growth as the tax outgo increased by 171%.
  • Glenmark received an upfront payment of US$ 15 m from Salix. This was a part of its US$ 21.6 m out licensing deal with Salix. These funds are expected to be utilized to upgrade its manufacturing facilities to meet Salix's requirements for Crofelemer.
  • Glenmark received final ANDA approvals for four products and filed three ANDAs with the U.S. FDA. In the quarter ahead, the management plans to file four new products and also anticipates launch of seven new products. These products belong to various categories like oral solids, oral contraceptives, semi-solids and exclusive launches.
  • For two of its paragraph IV filings in the derma segment, Glenmark reached settlement agreements in this quarter. Glenmark will be entitled to 180 days of exclusivity for both products as it is the first generic company to file an ANDA for those products. As per the settlement agreement, Glenmark will be able to market one of the products from March 2012 and the other product by the end of 2012.

What to expect?

At the price of Rs 320, Glenmark is trading at a price to earnings multiple of 12 times our estimated FY14 earnings. Going forward, the key growth drivers for the company will be the US, India and Latin America. In the US especially, its focus on a niche product portfolio will augur well for the company. Last year, Glenmark had also unveiled plans of launching oncology products in the US by using its Argentinean operations as the base. The company will launch around 7 to 10 new products per year which should lead to a healthy growth in revenues. Currently the ANDA count of the company stands at 113 filings of which 69 are approved and rest is pending approval. Overall, we maintain our HOLD view on the stock.

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