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Glenmark: Overall expenses step up

Nov 1, 2013 | Updated on Oct 30, 2019

Glenmark has announced its 2QFY14 results. The company has reported 16.6% YoY growth in sales and a decline of 1.6% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 16.6% YoY during the quarter led by growth in both its specialty and generics businesses.
  • Operating margins remain flat at 21.6% on account of increase in R&D costs. However, operating profits increase by 16.3% for the quarter.
  • Bottomline declines by 1.6% YoY during 1QFY14 on back of increase in depreciation and taxes.

Financial performance: A snapshot
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 12,556 14,634 16.6% 22,962 27,016 17.7%
Expenditure 9,842 11,477 16.6% 18,598 21,381 15.0%
Operating profit (EBDITA) 2,713 3,157 16.3% 4,365 5,635 29.1%
EBDITA margin (%) 21.6% 21.6%   19.0% 20.9%  
Other income 66 134 104.6% 92 167 82.5%
Interest (net) 321 485 51.0% 701 949 35.3%
Depreciation 384 605 57.7% 659 954 44.8%
Profit before tax 2,074 2,201 6.1% 3,096 3,899 25.9%
Tax 477 628 31.7% 695 1,020 46.8%
Minority Interest 30 30   51 49 -4.0%
Profit after tax/(loss) 1,568 1,543 -1.6% 2,350 2,830 20.4%
Net profit margin (%) 12.5% 10.5%   10.2% 10.5%  
No. of shares (m)         270.0  
Diluted earnings per share (Rs)         24.5  
Price to earnings ratio (x)*         22.3  
*based on trailing 12 months earnings

What has driven performance in 2QFY14?
  • Topline grew by 16.6% YoY during the quarter led by growth in both its specialty and generics businesses.

    Consolidated Business Snapshot
    Consolidated Business Snapshot 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Generics Business
    US 4,307 5,579 29.5% 8,231 10,048 22.1%
    Europe 389 517 33.1% 721 982 36.3%
    API 1,105 1,011 -8.5% 2,167 2,343 8.1%
    Total Generics (i) 5,801 7,107 22.5% 11,119 13,373 20.3%
    Specialty Business
    India 3,440 4,177 21.4% 6,238 7,463 19.6%
    RoW 1,941 1,736 -10.6% 3,289 3,421 4.0%
    Latin America 991 966 -2.5% 1,660 1,844 11.1%
    Europe 379 527 39.0% 649 788 21.5%
    Total Specialty Business (ii) 6,751 7,405 9.7% 11,837 13,517 14.2%
    Out Licensing Income (iii) - 118   - 118  
    Total (i)+(ii)+(iii)+(iv) 12,552 14,630 16.6% 22,955 27,008 17.7%

  • In the generics business, the US business recorded robust growth of 29.5% YoY, and in constant currency terms growth was at 15% YoY. Company has filed for various products for the US market, during the quarter. The company has 53 ANDA applications pending with the USFDA of which 27 are Para IVs. EU generics witnessed robust growth of 33.1% YoY on the back of new launches. The constant currency growth was 17% YoY for the quarter. Latin America witnessed a 2.5% YoY decline in sales. However, the company expects growth to stabilize in 2HFY14.

  • In the specialty segment, India grew by 21.4% YoY for 2QFY14. Company’s IMS ORG ranking has improved from 21st in Sept 2012 to 19th during Sept 2013. It is important to note that despite various pharma companies witnessing growth pressures and having registered growth in single digits, Glenmark witnessed robust growth in its domestic segment. Company continues to remain confident about its Indian business. The RoW markets grew by 11% YoY on back of good performance in its various geographies. As per the management, various challenges persist in the emerging markets. The lower approval rates and currency depreciation has impacted sales.

  • On the R&D front, the company incurred expenses of Rs 1,440 m. This is approximately 9.5% of sales. Glenmark had guided for a run rate of 8-8.5% of sales earlier. However, because the company has ramped up filings for the US market, this has resulted in an increase in costs. Going forward also, the company expects R&D expenses to be in the range of 9-9.5% of sales.

  • Operating margins remained flat at 21.6% on account of the increase in R&D costs. However, operating profits increased by 16.3% YoY for the quarter. Going forward, the company expects margins to improve with the launch of new products.

  • Bottomline declined by 1.6% YoY during 1QFY14 on the back of increase in depreciation charges and tax expenses. The depreciation run rate is expected to remain at Rs 600 m per quarter for the remaining part of the year. The increase in depreciation is partly due to increase in amortization. The amortization is partly pertaining to write off of new products launched during the quarter. As per the company’s policy, as and when it launches new products, it writes off over a period of time. Glenmark had launched various drugs in this quarter, resulting in an increase in this cost. On the taxes front, company expects tax rate to hover in the range of 22-23% for FY14. In FY15, Indore SEZ will become operational and hence the taxes would come down to approximately 20%.

    Financial highlights and other updates

  • Guidance: Glenmark has maintained guidance of 20% growth in top line and EBITDA of Rs 12.5 bn. Given the depreciation in the rupee, company could have revised the guidance upwards. However, because of lower approvals and increasing expenses, the company has remained conservative.

  • Net debt stood at Rs 25 bn at the end of the quarter. The increase was because of the depreciating rupee.

  • Capex: For the 1STquarter, the capex incurred was Rs 820 m. For full year, the company expects capex to stand at Rs 3.4 bn.

  • Working capital cycle stands at 115 days. Glenmark expects working capital cycle days to remain in the range of 110-115 for FY14.

  • Forex gain for the quarter was Rs 100 m which is included in the other income.

  • Licensing income: Glenmark has received licensing income of Rs 118 m for the quarter. This was received from Forest for its mPGES- 1 inhibitors program. This research fee payment was received for advance trials.

What to expect?

At the current price of Rs 545, the stock is trading at a price to earnings multiple of 13 times our estimated FY16 earnings. Going forward, the key growth drivers for the company will be the US, Latin America and ROW markets. In US especially, its focus on a niche product portfolio will augur well for the company. The Indian business is expected to show good performance on the back of increased market share. Even the management remained confident of witnessing healthy growth atleast for the next 4-5 quarters.

The company is expecting trial data for its R&D pipeline in the next 12-18 months and is also looking out for licensing partners for its pipeline. However, due to recent run up in costs we have revised our financials. Overall, we maintain Hold rating on the stock.

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Jun 24, 2021 12:33 PM


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