CMP Rs424, Target Rs456, Upside 7.6%
Source: Company, India Infoline Research
- Glenmark recorded revenue growth of 20% yoy to Rs10.4bn, was below our estimate by 4%. The above estimated growth in domestic market was shadowed by the below expected growth in other geographies especially in US and RoW. Domestic business clocked in revenue growth of 24% yoy and 4.3% qoq to Rs2.8bn. The overall growth in generic business was 57.7% yoy where in US (+56.2%) and Europe (+89.5%) contributed the most. But, the subdued sequential growth in these geographies disappointed us. Specialty business grew by 22.9% yoy, amongst geographies in specialty segment, India grew by 24.1%, RoW was positive 28.8%, Latin America clocked revenue growth of 6.5% and Europe grew by 89.5% yoy.
- Glenamrk’s 75% of the revenue is dollar dominated; hence, the part of the growth is led by better realisation due to rupee depreciation. US business which contributed 38% to overall sales grew by 30% yoy in rupee term whereas in dollar terms revenue grew by 56% yoy. We believe US business to remain buoyant for next two years backed by company’s strong OC portfolio and exclusivities. In March 2012, the Company launched Nycomed’s Cutivate lotion under 180 days exclusivity which is yet to pick up and gain market share. Glenmark’s generic version of Locoid Lipocream is also expected to be launched by end of FY13 under a royalty-bearing license from Astellas and Triax (FTF). Glenmark’s marketing portfolio as on June 30, 2012 consists of 80 generic products authorized for distribution in the US market. The Company currently has 39 applications pending in various stages of the approval process with the US FDA.
- Domestic business witnessed strong growth of 24% yoy and 4% qoq to Rs2.8bn. As per ORG-IMS data, the company registered value growth of 28.6 % v/s the industry growth of 13.9%. We expect the growth momentum to continue with the restructuring activity of streamlining of channel inventory and receivables have finally started fructifying.
- RoW region recorded growth of 28.8% yoy in revenues led by better realisation and volume growth. According to Pharmexpert the Russian subsidiary improved its ranking to 58 in June’12 as compared to 67 in June’11. In Ukraine Glenmark has shown good growth in secondary sales at 65 % in Q1FY13.
|Rest of the World (ROW)||1,348||1,047||28.8||1,828||(26.2)|
- Update on pipeline of NCE and NBE molecules: Revamilast (GRC 4039); Glenmark plans to file an IND for Revamilast in the US in Q3 FY13 and intends to initiate Phase III trials for at least one indication by end of FY14. GRC 15300 (granted to Sanofi); A PhIIa proof of concept study in neuropathic pain has been initiated in Q1 FY13. GBR 500 (licensed to Sanofi); An application has been successfully filed in Q1 FY13 to initiate a PoC trial in Ulcerative Colitis in US and other countries. Crofelemer (in-licensed); successfully completed Phase 3 clinical testing for HIV associated diarrhoea. The trial was conducted by Salix Pharmaceuticals in the USA and the PDUFA date issued by USFDA is Sep 5, 2012.
- Glenmark recorded adjusted EBITDA margin (adjusted for forex) of 21.1% in line with our expectation. The current quarter has Rs550mn of loss due to forex at EBITDA level. Adj EBITDA margins (ex- forex loss) deteriorated by 7 bps yoy whereas improved substantially qoq by 364 bps. Adj PAT grew by 3.8% qoq to Rs1.2bn qoq to 65%. Margin is not comparable due to high base effect of Gabapentin in Q1 FY12 (Gabapentin was in short supplies in Q1FY12 and company capitalised on the opportunity which lead to higher realisation).
- Glenmark continues to chase top-line along with continuous thrust at enhancing margins. We believe management’s robust guidance of 22-25% growth in top-line and EBITDA forecast at ~9.2-9.5bn for FY13 is impressive, but we remain conservative. The improvement in the balance sheet, mainly the working capital cycle is notable. We revise 9-month SOTP target price to Rs456 and rate the stock Market Performer from BUY on the back of limited upside.
|QUARTERLY -(Rs. in Mn.)||Q1FY13||Q1FY12||%yoy||Q4FY12||% qoq|
|(Inc)/Decrese in stock||(102)||(582)||(82.4)||661||(115.5)|
|Purchase of Traded Goods||(593)||(1,207)||(50.9)||(365)||62.5|
|Adj Operating Profit||