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Glenmark: Growth across segments - Views on News from Equitymaster
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Glenmark: Growth across segments
Oct 27, 2010

Glenmark has announced its 2QFY11 results. The company has reported 23% YoY and 38% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 23% YoY during 2QFY11 largely led by growth across business segments.
  • EBDITA margins fall by 2.8% due to higher raw material costs (as percentage of sales).
  • Bottomline growth at 38% YoY is stronger than the growth in operating profits due to reduction in interest costs and depreciation charges.

Financial performance: Consolidated snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 6,025 7,414 23.1% 11,512 14,377 24.9%
Expenditure 4,340 5,543 27.7% 8,564 10,167 18.7%
Operating profit (EBIDTA) 1,685 1,870 11.0% 2,949 4,211 42.8%
Operating profit margin (%) 28.0% 25.2%   25.6% 29.3%  
Other income 141 182 29.2% 166 297 79.1%
Interest 456 308 -32.4% 895 586 -34.5%
Depreciation 362 343 -5.3% 674 671 -0.5%
Profit before tax 1,007 1,401 39.1% 1,546 3,252 110.3%
Tax 198 284 43.8% 203 580 185.9%
Profit after tax/ (loss) 809 1,116 38.0% 1,343 2,672 98.9%
Net profit margin (%) 13.4% 15.1%   11.7% 18.6%  
No. of shares (m)       269.6 270.0  
Diluted earnings per share (Rs)*         17.2  
P/E ratio (x)         18.7  
* on a trailing 12 months basis

What has driven performance in 2QFY11?
  • Glenmark’s overall revenues grew by a healthy 23% YoY during the quarter largely due to strong growth across most of its key business segments. As far as the speciality business is concerned, Latin America (excluding Argentina) and India did well to enable the business to report a 19% YoY growth. Latin America grew by 23% YoY led by strong growth in sales in Brazil. Growth was also bolstered by the contribution from markets such as Peru, Ecuador and Venezuela. India logged in a growth rate of 22% YoY due to strong performance of its power brands and new product launches. Sales from the semi-regulated markets and Europe grew by 10% YoY and 24% YoY respectively.

    Consolidated business snapshot
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Generics business            
    US 1,771 2,238 26.4% 3,492 4,068 16.5%
    Latin America (Argentina) 119 115 -2.9% 187 190 2.0%
    Europe 94 151 61.1% 135 255 88.5%
    API 592 772 30.4% 1,149 1,399 21.8%
    Total generics business (i) 2,576 3,277 27.2% 4,963 5,913 19.1%
    Speciality business            
    Latin America (Brazil & others) 399 493 23.4% 735 899 22.4%
    Semi regulated markets (SRM) 802 883 10.0% 1,588 1,616 1.7%
    Europe 283 351 24.1% 553 563 2.0%
    India 1,843 2,239 21.5% 3,502 4,175 19.2%
    Total speciality business (ii) 3,327 3,966 19.2% 6,377 7,254 13.7%
    Out-licensing revenue (iii)         895  
    Total (i+ii+iii) 5,903 7,243 22.7% 11,340 14,061 24.0%

  • Revenues from the generics business grew by a robust 27% YoY during the quarter largely led by the US. Revenues from the US grew by 26% YoY. During the quarter, Glenmark had a successful series of new product launches. Further, the company was granted final approval by the US FDA for 8 new products, the market size for which has been pegged at US$ 215 m. Glenmark filed 4 ANDAs with the US FDA. Also, the company now has 60 products in the market and 40 ANDAs in various stages of approval with the US FDA. Further, out of the total 13 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 June 2010. Europe also recorded a strong growth of 61% YoY on a lower base led by a mix of product sales, out-licensing and in-licensing.

  • Operating margins dipped by 2.8% during 2QFY11 largely due to higher raw material costs (as percentage of sales). The company attributed this to the appreciating rupee having an impact on realisations. As a result, operating profits grew by 11% YoY. Bottomline growth at 38% YoY was faster than the growth in operating profits due to reduction in interest costs and depreciation charges. Interest costs were lower during the quarter on account of restructuring and repayment of debt on the company’s books. For the half year, too, sales and net profits grew by a robust 25% YoY and 99% YoY respectively.

What to expect?
At the current price of Rs 322, the stock is trading at 12 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 Argentinean 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 view ResearchPro subscribers can view latest updates here on the stock from a long term perspective.

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