Glenmark Pharmaceuticals - 3QFY17 Result Update - Strong Quarter; Concern of Debt Overhang Recedes - Reliance Securities

Glenmark Pharmaceuticals (GNP) has delivered strong performance in 3QFY17 on the back of strong growth in the US business owing to launch of gZetia with 180-days exclusivity. Its revenue from the US business doubled to US$184mn from US$94mn in 3QFY16 (US$115mn in 2QFY17) primarily due to 2-month's gZetia sales (our estimate: US$60mn). API sales rose by 32% YoY due to Olmesartan API supplies to Mylan. Core EBITDA margins (excluding gZetia) remained weak owing to muted growth in domestic business (up 6% YoY), higher R&D spend (11% of sales) and other one-off expenses. Its PAT grew by 1.7x YoY to Rs4.6bn (vs. our estimate of Rs4.8bn). Management expects that net debt, which currently stands at Rs37.5bn, would be reduced to sub-FY16 levels by FY17E-end. Envisaging a strong growth traction, we upgrade our recommendation on the stock to BUY with a Target Price of Rs1,098.

Key Highlights

- GNP continues to guide for ~10% price erosion in base business. It plans to launch 10-15 products in the US in FY18E.

- Management has guided for US$200-250mn gZetia sales during 180-days exclusivity. We have assumed US$60mn gZetia sales in current quarter (2-months sales).

- GNP has filed 11 ANDAs in 9MFY17 and expects to file another ~10 ANDAs in 4QFY17E taking the total ANDAs filings to 20-22 ANDAs in FY17E.

- The Company is yet to receive any update from the US FDA for gRenvela & gWelchol.

- Expecting muted growth in domestic biz to continue in 4QFY17E, Management looks forward to some meaningful improvements from 1QFY18E onwards.

- Respiratory launches in the EU in FY18E instead of 4QFY17 envisaged earlier.

- With nil sales in Venezuela during 3QFY17, GNP expects repatriation of US$40mn in next few quarters.

Outlook & Valuation

We are positive on GNP's growth prospects in medium to long-term driven by niche product pipeline. In our view, the cash flow from gZetia launch (Dec'16 launch; US$200-250mn in 180-days exclusivity) would offer further comfort. Management expects that net debt, which currently stands at Rs37.5bn, would be reduced to sub-FY16 levels by FY17E-end. GNP is one of the safest players in terms of the US FDA track record. We expect GNP's Sales and PAT to deliver 14% and 36% CAGR, respectively, while margin would expand by 510bps to 24.1% over FY16-19E. We upgrade our recommendation on the stock to BUY with an SOTP-based Target Price of Rs1,098 (19x Sept'18E EPS of Rs56.5; NPV for gZetia: Rs15 & R&D pipeline: Rs10).

Shares of GLENMARK PHARMACEUTICALS LTD. was last trading in BSE at Rs.947.3 as compared to the previous close of Rs. 907.95. The total number of shares traded during the day was 263094 in over 10192 trades.

The stock hit an intraday high of Rs. 970.25 and intraday low of 940.95. The net turnover during the day was Rs. 251150808.

Source : Equity Bulls

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