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Glenmark: Challenges in US persist
Nov 14, 2014

Glenmark has announced its 2QFY15 results. The company has reported 14.8% YoY growth in sales and 7% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 14.8% YoY during the quarter, led by strong growth in Latin America and API segment.
  • Operating margins decline by 1.6% to 19.9% due to higher growth from lower margin products.
  • Bottomline grows by 7% YoY in tandem with the growth in operating profits.

Financial performance: A snapshot
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Net sales 14,634 16,807 14.8% 27,016 31,677 17.3%
Expenditure 11,477 13,455 17.2% 21,381 24,900 16.5%
Operating profit (EBDITA) 3,157 3,352 6.2% 5,635 6,776 20.3%
EBDITA margin (%) 21.6% 19.9%   20.9% 21.4%  
Other income 134 10 -92.8% 167 44 -73.5%
Interest (net) 485 510 5.3% 949 991 4.4%
Depreciation 605 650 7.4% 954 1,301 36.3%
Profit before tax 2,201 2,201 0.0% 3,899 4,529 16.2%
Exceptional expense - -   - -  
Tax 628 551 -12.2% 1,020 1,029 0.8%
Minority Interest 30 (1)   49 0  
Profit after tax/(loss) 1,543 1,651 7.0% 2,830 3,500 23.7%
Net profit margin (%) 10.5% 9.8%   10.5% 11.0%  
No. of shares (m)         270.0  
Diluted earnings per share (Rs)         22.5  
Price to earnings ratio (x)*         34.3  
*based on trailing 12 months earnings

What has driven performance in 2QFY15?
  • Topline grew by 14.8% YoY during the quarter led by growth in Latin America and the API segment. However, US witnessed decline in sales for the quarter.

    Consolidated Business Snapshot
      2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
    US 5,579 5,076 -9.0%     10,048 9,962 -0.9%
    Europe 1,044 1,305 25.0% 1,770 2,283 28.9%
    India 4,177 4,782 14.5% 7,463 8,753 17.3%
    RoW 1,739 1,740 0.1% 3,428 3,853 12.4%
    Latin America 966 2,308 138.9% 1,844 3,485 88.9%
    API 1,011 1,595 57.8% 2,343 3,041 29.8%
    Out Licensing Income 118     118 299 153.4%
    Total 14,633 16,805 14.8% 27,015 31,676 17.3%

  • The Domestic formulations segment witnessed healthy growth of 14.5% YoY. The company has ramped up share in cardiac, respiratory, anti diabetic, gynecology and anti- infective. Cardiac and dermatology are ramping up well in the domestic basket.

  • As far as exports are concerned, barring US and RoW markets, majority of the geographies witnessed good growth. Lack of approvals and launches in US market impacted the growth. Management expects second half of the fiscal to be better and anticipates approximately 4-5 product approvals. Company continues to do majority of its filings in complex injectables and dermatology space.

  • Both the Latin American (LatAm) and Russian markets are witnessing pressure. Currency devaluation and subdued business environment have been major challenges for various companies. Inspite of this challenging scenario, Glenmark has been able to bring turnaround in the LatAm market. Company is now positive on both EBITDA and PAT level. In Russia too, Glenmark has been able to grow well above the market.

  • In Europe, Glenmark witnessed good growth. UK in particular has witnessed robust growth of approximately 50% YoY during the quarter. However, majority of the European markets are witnessing various growth pressures.

  • Operating margins declined by 1.6% to 19.9% due to higher growth from lower margin products. Margins were also impacted due to lack of launches in the US market.

  • Bottomline grew by 7% YoY in tandem with the growth in operating profits. Although other income declined considerably, this was partly offset by the fall in tax expenses.
What to expect?

At the current price of Rs 771, the stock is trading at a price to earnings multiple of 17.4 times our estimated FY17 earnings. Going forward, the key growth drivers for the company will be the US, India, and Latin America. In US especially, its focus on a niche product portfolio will augur well for the company. There are various niche launches scheduled for launch in US. These products will be important growth drivers for the company.

The Indian business too remains an important growth contributor for Glenmark. Company has been able to ramp up its market share in various therapies. Going forward also this segment is expected to show good performance on the back of increased market share. The overall growth for Glenmark is expected to be quite exciting with new launches coming in. However the biggest concern for Glenmark is its debt position. The current debt to equity ratio for the company stands at 1.03x. Overall, we reiterate Hold view on the stock.

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