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Glenmark: Going global!

Sep 1, 2006

Performance summary
Glenmark Pharma announced mixed results for the first quarter ended June 2006. For the quarter, topline grew at a healthy double-digit pace led by a strong revenue growth in the international markets. While operating margins improved on account of a dip in raw material expenses, bottomline witnessed a decline on the back of higher interest costs and tax outgo.

Financial performance: Standalone snapshot
(Rs m) 1QFY06 1QFY07 Change
Net sales 1,134 1,307 15.2%
Expenditure 986 1,113 12.9%
Operating profit (EBIDTA) 148 194 31.2%
Operating profit margin (%) 13.1% 14.9%
Other income 11 25 122.3%
Interest 11 36 244.1%
Depreciation 44 55 26.9%
Profit before tax 105 128 21.6%
Tax (5) 28
Profit after tax/ (loss) 111 100 -9.7%
Net profit margin (%) 9.8% 7.7%
No. of shares (m) 59.3 118.7
Diluted earnings per share (Rs)* 5.6
P/E ratio (x)* 61.3
(* on a trailing 12-months basis)

What is the company's business?
Glenmark Pharma is a mid-sized company with focus on niche therapeutic areas of dermatology, gynecology, pediatrics and diabetics. The domestic formulations business contributed about 56% to the company's revenue in FY06. On the international front, while exports to the semi-regulated markets have been growing at a strong pace, the company is also looking to establish a presence in the US generics market and has entered into alliances with KV Pharma, Interpharm Inc, Konec Labs, InvaGen and Shasun Chemicals. The company is also focusing on R&D and has out licensed its lead compound for asthma to Forest Laboratories, US and Teijin Pharma, Japan in return for milestone payments.

What has driven performance in 1QFY07?
International business is gaining traction: Glenmark's topline on standalone and consolidated bases grew by 15% YoY and 22% YoY respectively during the quarter. This was led by superlative performance of its formulations business in the US, Latin America and Rest of the World (ROW) markets. The performance in the US markets was driven by the ramp up in the number of products. At the end of the quarter, Glenmark had 7 products in the US market. Glenmark had concluded a deal with Aspen US Inc. and Leigh Valley Technologies Inc, which gave it exclusive marketing rights to 5 controlled substance pharmaceutical products. The first of these products, ‘Codeine Phosphate' has been launched during 1QFY07. Besides this, the company also received approval for marketing all strengths of ‘Meloxicam' in July 2006. That said, with as many as 10 players present on Day 1 of launch, prices eroded by as much as 95%. The company expects to have 18 to 24 ANDAs in the US market by the end of FY07.

In the Latin American markets, the Brazilian and Argentinean markets mainly contributed to the topline, resulting in a 48% YoY growth in revenues. Glenmark filed 25 dossiers with various regulatory bodies in Latin America during the quarter and received approval to market 9 products.

Consolidated business snapshot
(Rs m) 1QFY06 1QFY07 Change
US 22 231 964.9%
Latin America 137 202 47.7%
Rest of the World (ROW) 98 366 273.4%
India 873 861 -1.3%
Total formulations 1,129 1,660 47.0%
API 187 255 36.8%
Out-licensing revenues 261 -
Total 1,577 1,916 21.5%

India – subdued performance: Revenues from the domestic formulations business declined by 1% YoY during the quarter. It must be noted that 1QFY06 included the sales from its ‘Valdecoxib' brands, which were not present this quarter (These brand were withdrawn by the company at the end of 1QFY06).

Out-licensing revenues: While Glenmark's molecule ‘Oglemilast' has entered Phase II clinical trials, triggering the next milestone payment of US$ 30 m, it has yet to receive the same. . The company expects to receive the payments in FY07.

What to expect?
At the current price of Rs 343, the stock is trading at a price to earnings multiple of 61.3 times its trailing twelve-months earnings (on a standalone basis). Glenmark's presence in the regulated markets of the US and Europe is in its nascent stages. However, it has adopted the strategy of entering into alliances with companies, which is likely to give a boost to its US generics business going forward.

Similarly, the company has embarked on a strategy of increasing its presence in the Latin American and semi-regulated markets as well, which will further drive topline growth. On the R&D front, with ‘Oglemilast' moving into Phase II clinical trials, Glenmark is awaiting the receipt of the next milestone payment for the same from Forest Labs (will accrue in FY07). Besides, it is also looking to find out-licensing partners for the same molecule in the European markets. The company also has 6 molecules under various stages of development, which could also turn into in-licensing opportunities going forward.

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Dec 3, 2021 (Close)


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