Glenmark Pharmaceuticals - All's well; Buy - Anand Rathi

Revenue growth intact. We expect just 15.3% yoy base business revenue growth, though a growth of just 11.2% yoy on reported basis including NCE income in 3QFY13. The growth would be driven by US generics and domestic formulations. We estimate decline of 170bps in reported EBITDA margin, but an increase of 20bps in base business. Increase in depreciation, absence of NCE income in 3QFY14 and effective tax rate would result in decline 16.3% yoy adjusted PAT during the quarter on reported basis.1 US generics, domestic formulations key drivers. We expect its global generics to report 27.7% yoy revenue growth, largely driven by 44% yoy rise in its EU generics revenues and 29% yoy growth in US business. Domestic formulations would continue to be on strong growth trajectory with 18% yoy increase in revenue. Other businesses like Latin America and ROW markets could show flat revenue growth. Revenue from Semi Regulated formulation is expected to show decline 9% yoy on high base.

Consistent growth momentum. We expect Glenmark Pharma to report 17.3% base business revenue CAGR and 20.9% adjusted PAT CAGR, over FY13-16 in base business, led by strong growth in key markets like the US and India. Higher PAT growth with improved working capital cycle would result in decent free cash flow generation. This would help in bringing down debt-equity from the current level of 0.8x to 0.2x by FY16e. Any positive news on NCE (new chemical entity) would provide upside to our estimates.

Our take. We expect the company to report 15.3% yoy revenue growth in base business in 3QFY14 led by US generics and domestic formulations. We estimate its adjusted PAT to decline 16.3% yoy on high base and higher depreciation charge. We maintain Buy with a price target of Rs. 645 based on 18x FY15e core earnings, Rs. 27 for its NCE pipeline and Rs. 12 for the Zetia opportunity. Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

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