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Glenmark: Impressive growth; margins suffer
Nov 15, 2011

Glenmark Pharma has declared its results for the second quarter of 2011-12 (2QFY12). The company has reported a 45.8% YoY growth in net sales and 35.2% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Net sales increase by 45.8% YoY led by growth in Specialty business which includes revenue from out-licensing.
  • Operating margins (EBITDA) rise 190 bps (1.9%) to 21.4% led decrease in raw material and employee costs. However, other expenditure increases.
  • While profit before tax grows by a healthy 74%, net profits fall by 35.2% YoY largely due to exceptional losses incurred to the tune of Rs 1.3 bn.

Financial performance snapshot
(Rs m) 2QFY11 2QFY12 Change 6mFY11 6mFY12 Change
Net sales 7,241 10,557 45.8% 14,089 19,242 36.6%
Expenditure 5,827 8,301 42.5% 10,352 14,017 35.4%
Operating profit (EBIDTA) 1,413 2,256 59.6% 3,737 5,225 39.8%
EBDITA margin (%) 19.5% 21.4%   26.5% 27.2%  
Other income 154 (81) -152.3% 254 43 -83.2%
Depreciation 228 247 8.5% 458 511 11.5%
Interest 400 291 -27.4% 770 699 -9.3%
Profit before tax 940 1,637 74.3% 2,763 4,057 46.9%
Tax 78 (238) -405.3% 195 81 -58.5%
Exceptional Gain / (Loss)   (1,317)   - (1,317)  
Profit after tax/(loss) 862 559 -35.2% 2,567 2,660 3.6%
Net profit margin (%) 11.9% 5.3%   18.2% 13.8%  
No. of shares (m) 270 270   270 270  
Diluted earnings per share (Rs) 3.2 2.1   9.5 9.8  
Price to earnings ratio (x)*   19        
*On trailing 12 month basis

What has driven performance in 2QFY12?
  • The company's net sales for the quarter grew by a healthy 45.9% YoY, led by a strong display by the speciality as well as generics business. The speciality business (contributes ~60% to sales) grew by 67.3% YoY on back of out-licensing revenues and strong growth from Latin American and ROW markets. The domestic market sales grew by 20% YoY to Rs 2.5 bn assisted by four new product launches and increased market shares of key therapeutic segments. The out-licensing revenues received from Sanofi stood at Rs 1.1 bn. The generics business (contributes ~39% to sales) grew by 21.9% YoY driven by volume growth from existing products as well as new launches in the US generics market.

    Revenue Break-up
    (Rs m) 2QFY12 2QFY12 Change 6mFY11 6mFY12 Change
    Speciality Business
    India 2122 2539 19.7% 3999 4793 19.8%
    Rest of the World (ROW) 811 1479 82.4% 1544 2526 63.6%
    Latin America 493 738 49.8% 859 1330 54.9%
    Europe 351 378 7.4% 563 593 5.2%
    Total 3777 5134 35.9% 6966 9242 32.7%
    Out-Licensing Revenue 0 1185   895 2297  
    Total Speciality Business 3777 6319 67.3% 7861 11539 46.8%
    Generics Business
    US 2238 3001 34.1% 4068 5512 35.5%
    Europe 134 185 37.9% 215 361 67.9%
    Latin America 115 41 -64.1% 190 70 -63.1%
    API 787 763 -3.0% 1421 1409 -0.8%
    Total Generics Business 3274 3990 21.9% 5894 7352 24.7%
    Other 184 246 33.2% 298 347 16.2%
    Consolidated Revenue 7236 10554 45.9% 14053 19237 36.9%

  • Operating margins (EBITDA) increased by 190 bps (1.9%) due to lower raw material and employee costs. However, adjusting for out-licensing income and forex losses, there was a decrease in operating margins led by poor product mix and higher R&D costs.

  • While profit before tax grew by a healthy 74% YoY, net profits plunged by 35.2% YoY on account of exceptional loss of Rs 1.3 bn. This was payment made to Paul Capital Partners towards settlement of its R&D deal.

  • For two of its para IV filings in the derma segment, Glenmark reached settlement agreements in the previous quarter (1QFY12). Glenmark will be entitled to 180 days of exclusivity for both products as it is the first generic company to file an ANDA for those products. As per the settlement agreement, Glenmark will be able to market one of the products from March 2012 and the other product by the end of 2012.

What to expect?
At the price of Rs 333, Glenmark is trading at a price to earnings multiple of 12.5 times our estimated FY14 earnings. Going forward, the key growth drivers for the company will be the US, India and Latin America. In the US especially, its focus on a niche product portfolio will augur well for the company. Last year, Glenmark had also unveiled plans of launching oncology products in the US by using its Argentinean operations as the base. The company will launch around 7 to 10 new products per year which should lead to a healthy growth in revenues. Currently the ANDA count of the company stands at 110+ filings of which 41 ANDAs are pending approval. Overall, we maintain our HOLD view on the stock.

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