Glenmark Pharmaceuticals - Quarterly Update - Elara Capital

Core business leads the charge

All major markets on a roll

Glenmark reported 34% YoY sales growth and 33% YoY growth in PAT with 21% EBITDA margin in Q4FY12. Core sale growth benefitted from specialty business in India and semi-regulatory markets. Generic business benefitted from full impact of dermatology portfolio (post buyout Paul Capital JV) and 12 new products in US, new molecules in APIs and license income from EU. Robust flow of approvals in oral contraceptives (OC), branded presence in dermatology products and strong portfolio of controlled release drugs helped the company achieve 53% and 45% US sales growth in Q4FY12 and FY12 respectively. Our sales estimate of INR10.6bn is in-line with the reported sales in Q4FY12.

India sales outperform peers, export benefits from exchange rate

With restructured sales force and focused marketing in key therapeutic areas, Glenmark gained 24% and 19% YoY sales growth in Q4FY12 and FY12 respectively. It maintains leading position in dermatology along with augmenting market share in CVs and respiratory therapy. Management's strategy to keep major part of export unhedged paid off with USD/INR appreciation.

Management has guided for 22%-25% sales growth of core business (excluding out-license revenues) and EBITDA of INR9-9.25bn (implied 19%-20% margin) in FY13E. Capex and R&D are expected to touch INR2.5bn and 6%-7% of sales respectively in FY13E.

Valuation: Upgrade to Buy, increase target price to INR400

With increasing visibility in OC and derma products and focused marketing in India formulations, we expect Glenmark to achieve 20% core sales growth and 20% EBITDA margin over FY12-14E. We however have not factored in revenues from NCE out-license, which would benefit in reducing debt. Visibility in 7-8 niche generics in US would lead growth in FY13E. Launches of differentiated products would also boost growth in domestic formulations and increase contribution of branded generics. We upgrade our recommendation to Buy with increase in target price to INR400.

Source : Equity Bulls

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