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Glenmark: High Costs hit the Bottom line - Views on News from Equitymaster
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Glenmark: High Costs hit the Bottom line
Nov 8, 2016

Glenmark has announced its September quarter (2QFY16) results. The company has reported 15.7% YoY growth in net sales and 3.5% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Net sales for the quarter were up by 15.7% YoY during the quarter. Barring Latin America and Europe, all the major geographies have shown a healthy growth for the quarter. The growth in the US business (up 28.9%) was driven by new launches. Products such as Crestor generics launched in 1QFY17 and launch of various drugs in dermatology space. Crestor generics launched in 1QFY17. India business was impacted (up 10.9%) due to pricing policy (impacts around 2-3% of annual sales) and absence of Sitagliptin revenues for the current quarter. Revenues from Europe for the quarter declined by 16.2% YoY on the back of sharp depreciation in the GBP (British currency). Over and above, the performance in the central and eastern European markets too remained weak for the quarter. On the other hand, Latin America continues to remain under pressures and declined by 19.2% YoY. The company did not generate any revenues from Venezuela. Revenues from Latin America will see momentum once the approvals in Brazil stabilizes.
  • Operating margins declined by 100 bps to 20.2% in 2QFY17 due to higher operating expenses. Employee costs for the quarter surged by 29% QoQ and 21% YoY. The company made payment towards bonuses during the quarter, leading to sharp surge in the operating costs. The annual bonuses accounted for ~2% of sales.
  • The bottom line of the company surged just by 3.5% YoY on the account of sharp plunge in the other income. The company reported negative other income owing to forex loss, largely pertaining mark to market. The interest costs too surged by 47% YoY. With the higher operating costs, the bottom line witnessed a tepid growth.

    Financial performance: A snapshot
    (Rs m) 2QFY16 2QFY17 Change 1HFY16 1HFY17 Change
    Net sales 18,787 21,732 15.7% 35,120 40,827 16.3%
    Other operating income 306 509 66.3% 525 1,108
    Expenditure 15,056 17,753 17.9% 28,015 33,657 20.1%
    Operating profit (EBDITA) 4,038 4,488 11.1% 7,630 8,278 8.5%
    EBDITA margin (%) 21.1% 20.2% 21.4% 19.7%
    Other income 8.0 -18.4 62 741
    Interest (net) 426 629 47.5% 845 1,059 25.3%
    Depreciation 590 687 16.4% 1,244 1,329 6.9%
    Profit before tax 3,029 3,154 4.1% 5,603 6,631 18.4%
    Tax 869 918 5.6% 1,624 2,127 31.0%
    Profit after tax/(loss) 2,160.4 2,235.9 3.5% 3,978.5 4,503.8 13.2%
    Net profit margin (%) 11.5% 10.3% 11.3% 11.0%
    No. of shares (m) 282.2
    Diluted earnings per share (Rs) 26.7
    Price to earnings ratio (x)* 33.3

    *based on trailing 12 months earnings


      2QFY16 2QFY17 Change 1HFY16 1HFY17 Change
    India 6,085 6,749 10.9% 10,815 12,099 11.9%
    US 5,984 7,712 28.9% 11,595 14,694 26.7%
    RoW 2,109 2,538 20.4% 3,688 4,487 21.7%
    Europe 1,604 1,348 -15.9% 2,702 2,846 5.3%
    Latin America 1,657 1,338 -19.2% 3,842 2,897 -24.6%
    API 1,655 2,213 33.7% 3,004 4,176 39.0%
    Out Licensing Income/ others 342 0 737
    Total 19,094 22,240 16.5% 35,646 41,937 17.6%
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