Buy Glenmark Pharmaceutials - Elara Capital

• Glenmark Pharmaceuticals
• Rating : Buy
• Target Price : INR342
• Upside : 20%
• CMP : INR285 (as on 27 July 2010)

Turnaround in key markets

Domestic and Latam maintain growth momentum

Glenmark Pharmaceuticals has reported 27% yoy growth in sales to INR 6,963mn on the back of robust growth in domestic formulations, Latin America, and out-license income from Sanofi Aventis. While the company's sales and EBITDA are 7% and 8%, respectively, below our expectation, the reported PAT is in line with our expectation. The company achieves 17% yoy growth in domestic formulations due to its prominent brands in dermatology, cardiology, and respiratory segments.

Latam and the US show recovery in generics

Post restructuring of product portfolio and operations in Latam business, the company has achieved 21% yoy growth in branded formulations (in Brazil) and 10% yoy growth in oncology business. The geographical expansion in Latam market, other than Brazil and Argentina, is also one of the main contributors of growth in the Latam market.

The company's performance in its second important market, US generics, is achieved 6% yoy growth to INR 1,829mn. We consider the company's return to positive sales growth in the US is an important turnaround and is in line with our expectation. Glenmark's growth in the US generics has come after experience declining growth for consecutive eight quarters

Valuation: Maintain Buy, TP at INR 342

With a reported EPS of INR 5.8 and core business EPS of INR 2.7, we maintain our recommendation Buy with a target price of INR342. Post restructuring of debt for cheaper interest rate and lower tax rate, we expect the company's fundamental is poised to be accretive in near future. At a current market price, the stock is trading at PE 17x and 14x of FY11 and FY12 EPS. The stock offers 20% upside to our target price.

Source : Equity Bulls

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