Glenmark Pharmaceuticals - All-round growth; Buy - Anand Rathi

Glenmark Pharmaceuticals (Glenmark) reported better-than-estimated results in 2QFY13, led by strong performances in the US generics and domestic branded formulations. Working capital cycle improved to 106 days versus 120 as at FY12 end. We expect strong growth momentum to continue, along with improved balance sheet, and maintain a Buy with price target of Rs.481.

- 2QFY13 results satisfactory. Revenue grew 18.9% yoy to Rs.12.6bn versus our expectation of Rs.10.9bn, mainly led by strong growth in the US generics and India formulations. The base business' EBITDA margin remained flat at 20.4%, in line with our estimates. Adjusted for forex gain of Rs.150m, net profit declined 27.1% yoy, to Rs.1.5bn versus our expectation of Rs.1.4bn. The decline in adjusted PAT is due to outlicensing income of Rs.1.2bn in 2QFY12.

- US and India drive growth. Segment-wise, specialty formulations grew 30.5% yoy, led by India and semi-regulated markets. India formulations business grew a strong 35.5% yoy, significantly higher than the estimated 20% growth. The generics segment was up a robust 45%, led by strong growth of 43.5% in the US and 35.6% in APIs, yoy. US generics in constant currency terms grew 19.2% yoy to US$78.2m.

- Growth momentum to stay. We expect the strong growth momentum to continue for Glenmark, led by continuous launch of new products in niche categories. We estimate 16.4% revenue and 19.1% adjusted PAT CAGR over FY12-15, along with 150bps EBITDA margin expansion.

- Valuation. The stock trades at 17.8x FY13e and 14.9x FY14e earnings. We maintain a Buy on it, with a target of Rs.481 based on 17x FY14e core earnings and Rs.31 for Zetia and Crofelmer opportunities. Risks. Currency fluctuations and regulatory hurdles.

Source : Equity Bulls

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