Glenmark Pharmaceuticals Limited - Q4FY12 Result Update - GEPL Capital

Q4FY12 – Impressive topline growth, bottom-line flattish but business outlook remains strong

- Glenmark Pharmaceuticals Ltd. (Glenmark) reported an impressive 34% Y-o-Y growth in topline at Rs.10,662 mn in Q4FY12 against Rs.7,956 mn in Q4FY11. This was led by robust growth of 48% in the Generics business namely Europe (171%) and USA (53%). Net sales includes outlicensing income of Rs.365 mn for the quarter.

- Led by strong topline growth, EBITDA grew more than 1.5 times to Rs.2,218 mn against Rs.893 mn in Q4FY11. EBITDA margin was 21% in Q4FY12 against 11% in Q4FY11. Raw material cost showed marginal increase as a percentage of sales from 38% to 39%; however, staff cost (15% vs 16%) and Other Expenses (25% vs 35%) showed a decline.

- PAT at Rs.1,504 mn was 33% higher than PAT of Rs.1,134 mn recorded in Q4FY11. Depreciation and interest were flattish Y-o-Y whereas other income was Rs.23 mn against Rs.903 mn. Consequently, PAT margin came down marginally to 14.1% against 14.3%.

Result Highlights

Impressive sales growth in US and Europe; Domestic formulations growth returns to 20%+ levels after a 2 quarter lull

Glenmark recorded 53% growth in its US business and 171% growth in European business. US business growth was aided by price increases in the dermatological segment. Glenmark has been increasing prices in the dermatological segment for the past 2 quarters indicating strong grip over the US market. India formulations business returned to 24% growth after staying below 20% for 2 quarters. Growth was mainly led by volumes (14%-15%) and by new product launches (3%-4%).

Exciting pipeline of products to steer growth; emphasis on R&D to continue

Glenmark has tentative approvals for Lunesta (market size $818 mn), Singulair (market size $3.8 bn), Lexapro (market size$2.2 bn), etc. Although these are high competition products, cumulatively these would add considerably to the topline. R&D spend is currently 6.6% for Q4FY12 and management expects it to remain between 6% - 7% for FY13E, reinforcing Glenmark's continued focus on R&D.

Strong guidance from management indicates continued optimism going ahead

Management has indicated a strong 22%-25% growth in topline for FY13E, EBITDA at Rs.9,000 mn – Rs.9,250 mn excluding licensing income. Domestic business is expected to grow at 18% - 20% for FY13E. Glenmark has not planed any acquisitions for FY13E so far. We believe this would improve the Free Cash Flow from current Rs.3,000 mn.

Valuation & viewpoint

At the CMP of Rs.329.75, Glenmark is trading at 15.5x and 13.7x its FY13E and FY14E consensus earnings estimates. With strong growth in the key US market and an exciting pipeline of products lined up for release over the next 12-18 months, we expect Glenmark to deliver considerable value to long term investors.

Source : Equity Bulls

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