CMP Rs548, Target Rs605, Upside 10.4%
Source: Company, India Infoline Research
- Glenmark reported top-line numbers quite in line with our estimate but there was a miss at bottom-line. The Company recorded revenue growth of 19% yoy to Rs12.3bn. The overall growth in generic business was 17.8% yoy to Rs6.2bn, where US (+13.9%) and Europe (+40%) contributed the most. Specialty business grew by 20.4% yoy to Rs6bn. In specialty segment, India registered strong growth of 17.4% yoy despite industry growth of 10.1% on the back of new launches. RoW reported robust growth of 25% yoy, Latin America grew 33.5% yoy though on a lower base. The other segment which led the maximum growth was API segment. The reported growth in this segment was 26.5% yoy and 35.4% qoq to Rs1.3bn. We expect robust growth in the segment led by Crofelemer APIs. Salix has launched innovative drug Fulyzag (Crofelemer) in the US market and Glenmark is sole supplier of Crofelemer APIs to Salix.
- The Indian business grew by a stellar 17.4% vs. industry growth of 10.1% (as per ORG IMS). As per ORG IMS Mat Jun 2013, Glenmark gained 3 ranks and now positioned to 22nd to with increase in market share to 0.10 % exhibiting value growth of 16.4 % vs. IPM growth of 10.1%. We believe the new launches and OTC and other generic products led the growth despite disruption in domestic business. The management also commented that the only two brands have come under price control as per the new pricing policy and maximum negative impact per year would be around Rs60mn.
- US sales grew by 25% yoy in rupee term whereas in dollar terms revenue grew 11% yoy to US$80mn. The company received approval for four products during the quarter and expects to launch in the next quarter. Glenmark was granted approval of four ANDAs viz. Zolmitriptan, Zolmitriptan OD, Riluzole, and Rizatriptan OD Tablets. Regarding the Tarka patent litigation, the management still awaits the decision.
- We believe US business to remain buoyant for next two years backed by companyâ€™s strong OC portfolio and niche launches. Additionally, launch of Crofemeler and launch of new niche launches in future will give major boost to US business. Glenmarkâ€™s as on date has 87 generic products authorized for distribution in the U.S. market. The Company currently has 53 applications pending in various stages of the approval process with the US FDA, of which 26 are Paragraph IV applications.
|Particulars (Rsmn)||Q1FY14||Q1FY13||%yoy||Q4FY13||% qoq|
|Rest of the World (ROW)||1,686||1,348||25.0||2,213||(23.9)|
- Operating margin was below our estimate of 21%. The EBITDA margin at 20% declined 114bps yoy and remained flat qoq. The gross profit margins increased 250 bps yoy to 67.3% due to a change in the product mix and lower rupee but higher R&D cost led to the decline. Lower EBITDA margin coupled with higher effective tax rate of 23.1% resulted in lower growth in PAT. The bottom line declined 29.2% yoy to Rs1.2bn.
- Update on pipeline of NCE and NBE molecules:
- Revamilast (GRC 4039): A candidate for variety of respiratory and inflammatory disorder is undergoing a Phase IIb study for asthma in Europe and Asia. Glenmark has an open IND for Revamilast in the US and has completed a safety and PK study in geriatric subjects under this IND, Glenmark anticipates top-line data from another Phase IIb trial for Revamilast in Asthma in coming quarters. For GRC 17536, Glenmark completed Phase 1 study and received approval for Phase II proof of concept study in pain indication in the UK, Germany and India. Glenmark is currently recruiting patients for a Phase II proof of concept study in pain indication in Europe and India. Additionally, Glenmark has initiated a Phase I/IIa study for respiratory indications in the UK (MHRA). GRC 15300 (granted to Sanofi); A Phase IIa proof of concept study in neuropathic pain has been initiated in Q1 FY13 and currently itâ€™s still ongoing has completed recruitment. GBR 500 (licensed to Sanofi); A Phase II proof of concept study in ulcerative colitis has been initiated in Q2 FY13 and is currently ongoing. Crofelemer (in-licensed); the Partner Salix, the company obtained USFDA approval for marketing authorization in last quarter. Glenmark has initiated filings in a few countries amongst the 140 countries where Glenmark has exclusive marketing and distribution rights. mPGES-1 inhibitors (option agreement with Forest Laboratories): currently conducting pre-clinical studies and other development. GBR 900: (licensed from Lay Line Genomics, Italy) Phase 1 enabling toxicity studies for GBR 900 have been initiated. Glenmark plans to file for a Phase I study in the current financial year. GBR830: Phase 1 enabling toxicity studies for GBR 830 are nearing completion and Glenmark plans to file for a Phase 1 study in FY14.
- Outlook & Valuation: Glenmark continues to chase top-line along with continuous thrust at enhancing margins. We believe managementâ€™s robust guidance of 20% growth in top-line for next year and operating margin at around 21% is quite achievable. We maintain our BUY recommendation with a revised target price of Rs605.
|QUARTERLY -(Rs. in Mn.)||Q1FY13||Q1FY13||%yoy||Q4FY13||% qoq|
|(Inc)/Decrease in stock||(343)||(102)||235.1||1,049||(132.7)|
|Purchase of Traded Goods||(796)||(593)||34.3||(1,015)||(21.6)|
|Adj Operating Profit||2,478||2,201||12.6||2,698||(8.1)|
|OPM (%)||20.0||21.1||(114) bps||20.2||(18) bps|