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Spark Capital: Glenmark Pharmaceuticals - Q4FY13 results review




Spark Capital Advisors(India) Private Limited


08 May 2013





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Re-rating story on track; Maintain ‘Buy’ Glenmark’s 25% yoy revenue growth in Q4FY13 was driven by strong growth across key geographies, particularly the India formulations segment (32% yoy growth). Gross margin improvement from a superior sales mix was partially offset by marketing expenses related to new segment launch and GDUFA payments. Adjusted for MTM losses and assuming normalized tax rates, PAT growth for the quarter was 52% yoy. Working capital cycle improved to 106 days (from 120 days in FY12) and net debt levels (adjusted for MTM) remained stable in spite of additional capex of Rs. 1.4bn for crofelemer plant. With continuing growth and balance sheet improvement, we expect the stock to re-rate further. Maintain ‘Buy’ rating on the stock with an SOTP target price of Rs. 598 (16x FY15E EPS of Rs. 35.1 plus Rs. 27 per share for crofelemer plus Rs. 10 per share for other NCE molecules) Takeaways from post-results conference call: Growth in domestic formulations was aided by launch of OTC and generic segments and launch of generic versions of Merck’s Januvia and Janumet (currently under litigation) In FY12, Glenmark filed 18 ANDA filings. Company guided for 18-20 filings for FY14. Five products were launched in the US in FY13 The sharp 30% increase in ‘other expenses’ was on account of 1) MTM loss of Rs. 150mn 2) GDUFA expenses 3) marketing expenses related to launch of OTC segment in Russia Capex of Rs. 4.7bn for FY13 includes ~Rs. 1.4bn for setting up crofelemer plant (in anticipation of Salix’s launch of crofelemer in the US). Capex for FY14 was guided at Rs. 3.5bn R&D expense for FY13 was Rs. 3.9bn (7.8% of sales). Breakup of R&D spend between NCEs and generics was Rs. 2bn and Rs. 1.9bn, respectively. R&D expense for FY14 was guided at 8.5% of sales Net debt increased Rs. 2.2bn in FY13 to Rs. 21.4bn. Net working capital cycle improved to 106 days (from 120 days in FY12) Management guided for 20% topline growth and Rs. 12.3bn of EBITDA for FY14

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