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Glenmark Pharmaceuticals Ltd>
  • CMP : 1,237.2 Chg : 12.30 (1.0%)
  • Target : 440.0 (7.32%)
  • Target Period : 12-18 Month

13 Feb 2023

Margin recovery hinges on key launches, cost control…

About The Stock

Glenmark’s business is separated into three entities –

  • Glenmark Pharmaceuticals for building a global generic, specialty and OTC business in therapy areas of dermatology, respiratory, oncology among others
  • Glenmark Life Sciences for manufacturing and marketing APIs
  • Innovation new company (ICHNOS) to focus on discovery and development of novel, first‐in‐class treatments in therapeutic areas of immunology, oncology and pain encompassing both NBEs as well as NCEs
Q3FY23

In line revenues but EBITDA margins miss.

  • Revenues increased 9.2% YoY to ₹ 3463 crore
  • EBITDA was at ₹ 432 crore, down 10.5% YoY with margins at 17.9
  • Adjusted PAT was at ₹ 239 crore (down 40.4% YoY)
What should Investors do?

Glenmark’s share price has grown at 8.64% CAGR over the past three years.

  • Maintain HOLD as we await EBITDA margin sustainability besides persisting US base business pressure amid regulatory hurdles at Monroe facility
Target Price and Valuation

Valued at ₹ 440 i.e. 8x FY25E EPS of ₹ 54.8

Key Triggers for future price performance
  • In the US, regulatory clearance for newly commissioned US based Monroe facility will be the key determinant for future launches
  • Traction for Ryaltris in global markets along with the launch in the US
  • In India, it is the market leader in dermatology and improving its presence in respiratory, CVS, anti-infectives and anti-diabetics, in particular. It has also forayed into consumer health segment focusing on Rx-OTC switch products led by two brands, Candid and Scalpe+
  • Progress on the margins front amid cost rationalisation measures and decline in R&D expenses as percentage of sales
Alternate Stock Idea

Apart from Glenmark, in healthcare coverage we like Ajanta.

  • Ajanta Pharma is a focused player in branded space with specific strategy for maximum number of first time launches with new drug delivery system
  • BUY with a target price of ₹ 1385

Key Financial Summary

Particulars FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E FY25E 2 Year CAGR (FY23E-FY25E)
Revenues 10,641.0 10,943.9 12,304.9 6.0 13,006.3 14,208.2 15,614.5 9.6
EBITDA 1,698.1 2,084.4 2,320.3 2.6 2,283.6 2,557.5 2,810.6 10.9
EBITDA margins (%) 16.0 19.0 18.9 - 17.6 18.0 18.0 -
Adjusted PAT 743.1 925.5 1,202.6 0.0 936.9 1,336.0 1,543.6 28.4
EPS (|) 26.4 32.9 42.7 - 33.3 47.4 54.8 -
PE (x) 15.2 12.2 12.6 - 12.2 8.9 7.7 -
EV to EBITDA (x) 9.2 7.4 6.1 - 5.7 4.8 4.1 -
RoNW (%) 12.2 13.1 13.2 - 9.4 11.9 12.2 -
RoCE (%) 12.7 13.9 14.8 - 14.9 15.7 16.4 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q3FY23 Results: In line revenues but EBITDA margins miss

  • Revenues increased 9.2% YoY to | 3463 crore, with growth driven by the US and Europe. EBITDA de-grew 10.5% YoY to | 620.2 crore while EBITDA margins declined 394 bps to 17.9%, mainly due to increase in other expenditure. Adjusted PAT declined 40.4% YoY to | 239 crore

 

  • Glenmark’s numbers were in line with our expectations in terms of revenues but was a miss on operational front. Such performance was led by growth coming in from across geographies. The company witnessed healthy double digit growth in North America as well as European markets while good growth was also delivered by RoW markets. The company, in the recently conducted analyst meet, has unravelled strategic initiatives like branded focus, improvement in profitability and ROCE besides niche product focus and global launches (Ryaltris). We continue to monitor focus on the same

 

Q3FY23 Earnings Conference Call highlights:

India:

  • The business contribution came in at 31% in Q3FY23 against 32% in Q3FY22. This was on account of improved market share in its key therapeutic areas of cardiac, 5.37% from 4.85% YoY and dermatology, 8.15% from 8.05% YoY
  • Its flagship brand Candid Powder delivered revenue growth of 9% during the quarter whereas La Shield portfolio delivered 36% growth in Q3FY23. The launch of moisturiser has helped the company expand its La Shield product range

North America:

  • Its contribution improved to 24% to overall sales in Q3FY23 against 22% in Q2FY23
  • It has received couple of approvals during the quarter
  • It was successful in reaching settlement agreement with Pfizer Inc, PF Prism CV, and PF Prism IMB BV (Pfizer) for various strengths of Axitinib tablets
  • It filed one ANDA during the period and plans to file six to eight more applications in the coming quarters

Europe:

  • It generated 14% revenues in Q3FY23 against 12% in Q3FY22. This was largely driven by robust performance from western, central and eastern European markets (CEE)
  • Important CEE nations including the Czech Republic and Poland experienced double-digit growth in secondary sales throughout the quarter
  • Increased base business and the introduction of new products in the CEE regions during Q3FY23 were main drivers of growth. Key brands like Ryaltris and Salmex/Asthmex gained market share, both in volume and in value across CEE markets
  • In the western region, markets like Netherlands, UK and Germany all experienced considerable increase for Q3. Tiogiva continued to grow in these markets

RoW:

  • This business contributed 19% in Q3FY23 against 17% in Q3FY22. Brands like Ryaltris, Montlezir, Candiderm and Candibiotic drops supported growth
  • Malaysia and Philippines continued to experience double-digit among major Asian markets
  • The weakening of its currency continues to present problems for Myanmar
  • The secondary sales growth has continued to be significant for Mexico as well, expanding at 15% compared to the markets 8% value increase as per IQVIA MAT data December 2022

API:

  • Revenues from generic APIs climbed 1.8% YoY in Q3FY23. Regulated markets business keeps up its rapid growth trajectory, with an increase in contribution to 76.5%. Revenues for CDMOs fell by 9.6% QoQ in Q3FY23 but demand is predicted to increase starting in Q4FY23

Launches/Pipeline products:

  • In India, the company was able to launch multiple new products. The company continues to have a healthy pipeline of differentiated products, which it plans to launch in the market, going forward
  • In North America, the company launched Fingolimod capsules and also new pack size for Olmesartan Medoxomil tablets USP
  • It managed to launch six new products in the WEU markets whereas Glenmark’s partner in South Korea, Yuhan launched Ryaltris in Q3FY23

Other highlights:

  • Respiratory remained the key therapy areas for both LatAm and Asian markets whereas Dermatology did well only for Asian markets
  • In addition to the US, Europe (UK and 10 markets throughout the EU), Australia, Russia, South Korea, and South Africa, Ryaltris is now available in 23 markets. Ryaltris continues to hold ~15% market share in Australia
  • The company intends to gain scale in markets like UAE, Uganda and Tanzania on the back of new launches
  • Several capacity-expansion projects have been completed and are currently being worked on for API business in Ankleshwar and Dahej

Disclaimer

ANALYST CERTIFICATION

I/We, Siddhant Khandekar, Inter CA, Kushal Shah, CFA L1, CFP, Utkarsh Jain,MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

Buy: >15%

Hold: -5%to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research

pankaj.pandey@icicisecurities.com

 

 

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

 

 

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