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Glenmark Pharma: Eyeing exports

Dec 16, 2003

Glenmark Pharma is one of the emerging domestic pharmaceutical companies. The company derives almost 82% of its revenues from the domestic formulations business, while export of formulations account for 9% of its revenues. The remaining 9% is contributed by its bulk drugs and co-marketing business. Glenmark Pharma recently announced its September quarter results. The company reported a 6% topline and a 22% bottomline growth. For the first half of FY04, the company reported a 13% growth in net sales and a 23% growth in net profit.

Results at a glance ...
(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
Net Sales 927 986 6.4% 1,342 1,516 12.9%
Other Income 2 6 157.9% 6 13 104.9%
Expenditure 738 767 3.9% 1,065 1,204 13.0%
Operating Profit (EBDIT) 189 219 16.2% 277 312 12.7%
Operating Profit Margin (%) 20.4% 22.2%   20.6% 20.6%  
Interest 28 30 7.1% 58 58 -0.4%
Depreciation 28 24 -15.0% 52 51 -2.0%
Profit before Tax 134 171 27.1% 173 216 24.8%
Tax 16 27 65.3% 24 33 34.6%
Profit after Tax/(Loss) 118 144 21.8% 148 183 23.2%
Net profit margin (%) 12.8% 14.6%   11.1% 12.1%  
No. of Shares 10 59.2   10 59.2  
Diluted Earnings per share* 8.0 9.7   5.0 6.2  
P/E Ratio   13.7     21.6  
(* annualised)            

The company recently split its shares from Rs 10 to Rs 2, and hence there is a sharp increase in the number of shares. An analysis of the topline of the company reveals that during the September quarter, formulations export was the key growth driver. In the domestic formulations business, price erosion of various key products of the company resulted in a meager 2% growth on a QoQ basis. The bulk drugs and co-marketing business also suffered de-growth during the quarter. Added to the above, the manufacturing operations at one of its factories were temporarily suspended due to fire. This might have impacted the performance of this business during the quarter.

Revenue mix by segment
(Rs m) 2QFY03 2QFY04 % change 1HFY03 1HFY04 % change
Formulations - Domestic 769 788 2.4% 1,190 1,244 4.5%
Export 74 135 82.3% 115 179 55.7%
API & Co-marketing 160 133 -16.9% 172 214 24.3%
Gross Sales 1,003 1,056 5.2% 1,477 1,637 10.8%

On the operations front, Glenmark Pharma managed to record a 180 basis point improvement in operating profit margins on the back of reduction in raw material cost and other expenditure as a percentage of net sales. However, increase in staff cost as a percentage of revenues pared some of the savings made in raw material and other expenditure. An improvement in operating profit margins coupled with a drop in depreciation provision has helped the company register a sharp 22% growth at the net profit level.

Expenditure as a percentage of net sales…
(Rs m) 2QFY03 2QFY04 1HFY03 1HFY04
Raw material 34.4% 32.8% 34.0% 29.2%
Staff cost 9.4% 11.2% 10.7% 13.3%
Other expenditure 35.9% 33.8% 34.6% 36.9%

During the quarter under review, Glenmark Pharmaceuticals Inc., a wholly owned subsidiary of Glenmark Pharma, entered into a marketing arrangement with US-based Lannett Company Inc., for the marketing of the various ANDAs filed by Glenmark Pharma in USA over the next two years.

At Rs 133, Glenmark Pharma is trading at a P/E of 22x annualised 1HFY04 earnings. The valuations seem to be on the higher side considering Glenmark's relatively small size. Glenmark Pharma has maintained its guidance of 15% topline growth for the year. While the company is registering good growth in the exports market, its performance in the domestic market, which accounts for most of its revenues, continues to be under pressure. To this extent, investors are advised to exercise caution.

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