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

Results below estimates. Glenmark Pharmaceuticals' (Glenmark) adjusted PAT grew just 6.2% yoy, to Rs. 1.57bn, lower than our expected Rs. 1.63bn, mainly due to increased depreciation charge (up ~90%) and higher effective tax rate of 28.5%. Revenues grew 16.6% yoy, to Rs. 14.6bn, above our expected Rs. 13.8bn, led by higher sales in the US and India. Base business EBITDA margin improved 50bps yoy, to 20.9% (versus our expected 20.5%), owing to better gross margins despite higher R&D spend.

Revenue growth continues. Revenue growth was marginally higher than estimated, chiefly because of strong performance in US generics and domestic formulations. US revenue grew 15% yoy, in constant currency terms, led by new launches and ramp up in existing products. Domestic formulations remained strong, with 21.4% yoy revenue growth, higher than industry growth (low single digit), driven by focus on high-growth segments like cardiac, respiratory and dermatology. However, RoW specialty formulation was a drag and declined 10.6% yoy.

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 18% CAGR over FY13-15, and 19.8% in adjusted PAT (excl. out-licensing income). Considering the favourable currency environment, we raise our FY14 and FY15 revenue estimates marginally by 0.9% and 0.7%, respectively. We, however, reduce our PAT estimates by 7.4% for FY14 and 3.2% for FY15 to factor in higher R&D spend, depreciation charge and effective tax rate.

The stock is currently trading at 20.9x FY14e and 16.2x FY15e earnings. We maintain Buy on the stock, with a revised target of Rs. 645 based on 18x FY15e earnings, Rs. 27 for the R&D pipeline and Rs. 12 for Para-IV products (earlier Rs. 658). Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

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