Glenmark Pharmaceuticals - Strong revenue growth but margins take a hit; Downgrade to 'ACCUMULATE'; TP Rs343 - PINC Research

Q3FY12 Result Review – Glenmark Pharmaceuticals

Strong revenue growth but margins take a hit

Glenmark reported strong sales growth of 34.5% YoY, ahead of our and street estimates driven by US, EU and RoW segments. The disappointment came in from the high-margin domestic segment, which grew by mere 11.3% YoY, impacted by inventory rationalisation. The company also incurred higher R&D cost during the quarter. In spite of strong rupee depreciation, Glenmark reported recurring OPM of 18.0% which was well below our estimates.

- Sales growth driven by US, EU and ROW segments
- Increased material cost and R&D spend impacted margins

VALUATIONS AND RECOMMENDATION

We have revised our sales estimates upwards for FY12 and FY13 by 4-5% to factor in the strong growth in the US, Europe and RoW markets. However, we cut our FY13 earning estimates by 3% to factor in higher R&D expenses which are offset by lower tax rate. As a result, we downgrade the stock to 'ACCUMULATE' with a revised target price of Rs343 valuing the base business at Rs321 (18x one year forward earnings); Rs13 P IV FTF (Zetia and Malarone) and Rs9 for R&D pipeline (GBR 500).

Source : Equity Bulls

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