CMP Rs500, Target Rs561, Upside 12.1%
Source: Company, India Infoline Research
- Glenmark continues to deliver strong growth even in Q3 FY13. Though we expect some cool of in Q4 FY13, our outlook remains strong. The Company recorded revenue growth of 34% yoy to Rs12.5bn, ~6% ahead of our estimate while revenue excluding Licensing fee (milestone income from Forest Laboratories (Rs493mn), was up 28% yoy to Rs13.1bn, was in line with our estimates. The overall growth in generic business was 33% yoy to Rs5.8bn, US (+36.5%) and Europe (+29%) contributed the most. Specialty business grew by 31.2% yoy to Rs7.3bn. Amongst geographies in specialty segment, India grew by 29.9%, RoW led most of the performance by growing 66.7%, Latin America clocked revenue growth of 16.9% and Europe was negative (-29.7%). API also reported strong growth of 36% yoy to Rs1bn.
- Glenamrk’s 75% of the revenue is dollar dominated; hence, the part of the growth is led by better Rupee realisation. US sales grew by 36.8% yoy in rupee term whereas in dollar terms revenue grew by 29.6% yoy. We believe US business to remain buoyant for next two years backed by company’s strong OC portfolio and niche launches. Additionally, launch of Crofemeler and Mupirocin Calcium in future will give major boost to US business. In Q3 FY13 the company received 2 ANDA approvals and filed 5 ANDAs. The Company currently has 83 approvals and 46 applications pending in various stages of the approval process with the US FDA (includes 18 P IV).
- Domestic business witnessed continuum strong growth of 29.9% yoy to Rs3.3bn. As per ORG-IMS MAT Dec’12 data, the company registered value growth of 24.5 % v/s the industry growth of 11.1%. Going ahead we expect the growth momentum to take breather on a higher base and slowing domestic growth.
- RoW region recorded record growth of 66.7% yoy in revenues to Rs2.6bn led by better realization, volume growth along with the addition of new products. The secondary sales for the Russian subsidiary continued to post higher growth (43% yoy). Glenmark Ukraine also posted strong sales growth of 104% yoy, primarily driven by the focus brands. All other regions in RoW continued to be high growth trajectory of +20% expansion. We expect robust growth to continue in the RoW business segment.
- Oncology (LatAm) business recovery is on track: The Oncology business based at Argentina, filed 1 product dossier each in Brazil, Ukraine and Mexico during the Q3 FY13. The company reported 43.14% growth in the revenue to Rs50.8mn (on a lower base). We expect the growth impetus to enhance in future with more filings.
|Particulars (Rsmn)||Q3FY13||Q3FY12||%yoy||Q2FY13||% qoq|
|Rest of the World (ROW)||2,620||1,571||66.7||1,941||35.0|
- Update on pipeline of NCE and NBE molecules: Company indicated the failure of Phase IIb results of Revamilast (GRC 4039) for treating Arthritis (peak sales of USD 2bn). Glenmark anticipates top-line data from another Phase IIb trial for Revamilast in Asthma in Q2 FY14. We believe the negative will soon be compensated with the recent approvals of Crofemeler and Mupirocin Calcium Cream. 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. Additionally, Glenmark has initiated a Phase I/IIa study for respiratory indications in the UK. GRC 15300 (granted to Sanofi); A Phase IIa proof of concept study in neuropathic pain has been initiated in Q1 FY13 and currently it’s on going. 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 company obtained USFDA approval for marketing authorization. This is a significant milestone in the development of this molecule and will pave the way for the Glenmark filings and approvals in the 140 emerging markets where Glenmark has exclusive marketing and distribution rights.
- Glenmark recorded margin of 23.6%, whereas adjusted EBITDA margin (adjusted for forex gains Rs40mn and milestone income of Rs493mn) of 20.6% in line with our expectation. Adj PAT grew by 44.7% yoy to Rs1.8bn was in line with our expectations.
- Outlook & Valuation: 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 is impressive (but we remain conservative and build +20% growth). The improvement in the balance sheet, mainly the working capital cycle is notable. We have introduced FY15 estimates with an EPS estimate of Rs35.3 and roll our multiple to FY15 an arrive at a SOTP target price of Rs561.
|QUARTERLY -(Rs. in Mn.)||Q3FY13||Q3FY12||%yoy||Q2FY13||% qoq|
|(Inc)/Decrese in stock||(806)||(385)||109.5||(309)||160.6|
|Purchase of Traded Goods||(1,101)||(876)||25.8||(1,213)||(9.2)|
|Adj Operating Profit||2,852||1,810||57.5||2,563||11.2|
|OPM (%)||20.6||17.6||309 bps||20.4||22 bps|