Glenmark Pharmaceuticals - PAT tax-hit, outlook positive; Buy - Anand Rathi

Results below estimates. Glenmark Pharmaceuticals' (Glenmark) revenues grew 19% yoy to Rs. 12.4bn, below our expected Rs. 13bn, due to lower sales in the US. EBITDA margin declined 110bps yoy, to 20%, owing to higher R&D spend versus our expected 20.5%. Owing to lower revenue and EBITDA margin, coupled with higher effective tax rate of 23.1%, adjusted PAT grew just 2.2% yoy to Rs. 1.3bn (versus our expected Rs. 1.6bn).

Revenue growth continues. Revenue growth was slightly less than estimated, chiefly because of just 13.9% yoy rise in the US generics and decline in revenue from EU specialty formulations. However, domestic formulations remained strong, with 17.4% yoy revenue growth, driven by focus on high growth segments like cardiac, respiratory and dermatology. RoW specialty formulations recorded 25% yoy growth, led by Ukraine, Africa and other emerging markets.

Change in our estimates. Considering the favourable currency environment and continued strong growth in domestic formulations, we raise our FY14 and FY15 revenue estimates 3.9% and 4%, respectively. We, however, reduce our PAT estimates by 0.8% for FY14 and 0.2% for FY15 to factor in higher R&D spend and effective tax rate.

Our take. We believe the strong growth momentum would continue, led by the US generics, domestic formulations and recovery in RoW and Latam. We also expect the base business to register a strong 17.6% CAGR over FY13-15, and 21.8% in adjusted PAT (excl. out-licensing income).

We maintain Buy on the stock, with a revised target of Rs. 658 based on 18x FY15e earnings, Rs. 27 for the R&D pipeline and Rs. 12 for Para-IV products (earlier Rs. 602 based on 18x Sep'14e). Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

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