Glenmark
BUY
INDUSTRY PHARMA
Down but not out!
Glenmarks (GNP) 4QFY17 performance was The US business: Post Zetia, the US business is likely to
CMP (as on 12 May 17) Rs 759 disappointing on all counts. While overall top line be driven by several derma launches over FY18-19E.
Target Price Rs 1,100 numbers were in line with expectations, sales from We are modelling 13% CAGR on the high base of
the US segment and gZetia were not. The EBITDA FY17E. Some significant launches over the next two
Nifty 9,401
margin came in at 20.5%, well below estimates. PAT years include gEpiduo, gMultaq, gWelchol, gRenvela,
Sensex 30,188
also took a beating on account of an impairment loss gFinacea and gNasonex. The recent launch of
KEY STOCK DATA of ~Rs2.6bn. Debt reduction was lower than the Clobetasol is also lucrative, and will be a significant
Bloomberg GNP IN guidance of Rs. 32bn given by the management. contributor once the entire range is launched.
No. of Shares (mn) 282 However, it is not all doom and gloom. Adjusted for The India business: Growth was tepid in 4QFY17
MCap (Rs bn) / ($ mn) 214/3,330 the Venezuela cash write-off, net debt is Rs 33.4bn, (~6%YoY), affected by channel issues. However, we
6m avg traded value (Rs mn) 503 lower by ~Rs3.25bn. Also, R&D spending was believe that GNPs domestic business is robust, and
STOCK PERFORMANCE (%) significantly higher in 4Q, at ~15.7% of sales. more resistant to seasonal and other external
52 Week high / low Rs 994/729
Adjusted for R&D and forex losses, the EBITDA disturbances. We foresee ~14% CAGR over FY17-19E,
margin would be ~24-25%. on the back of improving traction in anti-diabetes,
3M 6M 12M
Our view on GNPs strong innovative pipeline derma and respiratory therapies.
Absolute (%) (20.3) (13.9) (11.6)
remains unchanged, and positive results from clinical Profitability dented: Reported EBITDA margins
Relative (%) (26.9) (26.5) (28.6)
trials will be a key trigger for the stock going expanded ~1150bps YoY, on a low base. However,
SHAREHOLDING PATTERN (%) forward. Debt reduction is expected to play out there was a sharp unexpected dip on a sequential
Promoters 46.5 gradually over the next two years. At CMP, GNP basis, largely on account of higher R&D spend and
FIs & Local MFs 6.05 trades at 19.2x FY18E and 14.1x FY19E, a yawning lower gZetia sales. While we expect the base EBITDA
FPIs 34.77 discount to peers. Maintain BUY with a revised TP of margins to expand ~250bps over FY18-19E, this will be
Public & Others 12.68 Rs 1,100 (18x FY19E and Rs 135/sh for pipeline). dependent on ANDA launches and R&D spends.
Source : BSE
Financial Summary
(Rs mn) 4QFY17 4QFY16 YoY (%) 3QFY17 QoQ (%) FY16 FY17P FY18E FY19E
Net Sales 24,244 21,740 11.5 24,630 (1.6) 76,340 91,857 102,870 114,555
Amey Chalke EBIDTA 4,961 1,952 154.2 6,930 (28.4) 14,172 20,367 23,758 25,811
amey.chalke@hdfcsec.com APAT 2,809 1,487 88.9 4,771 (41.1) 7,019 8,340 11,130 15,138
+91-22-6171-7321 Diluted adj. EPS (Rs/sh) 10.0 5.3 88.9 16.9 (41.1) 24.9 29.6 39.4 53.6
P/E (x) 30.5 25.7 19.2 14.1
Siddhant Mansukhani
siddhant.mansukhani@hdfcsec.com RoE (%) 19.3 18.1 19.9 21.7
+91-22-6639-2476 Source: Company, HDFC sec Inst Research # Consolidated
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
GLENMARK: RESULTS REVIEW 4QFY17
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GLENMARK: RESULTS REVIEW 4QFY17
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
EBITDA margin declined RoW Business Growth Trajectory EBITDA Margin: Trend
significantly on a sequential
RoW Revenues (Rs bn) YoY growth (%) EBITDA (Rs bn) EBITDA margin (%)
basis. R&D expense for the
35.6
quarter was significantly 28.1
higher at ~15.7% of sales (vs 21.2 23.4 20.4
14.1
11.2% in 3QFY17). This was 20.8 19.9 19.4 20.5
6.2 18.3
the primary cause of the 17.7 17.0
EBITDA margin decline 13.9
-25.2 -3.1
-35.8
2.2 1.6 2.1 2.4 3.0 1.9 2.5 2.5 2.9
3 3 4 3 3 3 4 7 5
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
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GLENMARK: RESULTS REVIEW 4QFY17
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GLENMARK: RESULTS REVIEW 4QFY17
Peer Valuations
Mcap CMP Adj EPS (Rs/sh) P/E (x) RoE (%)
Reco TP
GNP is now trading at (Rs bn) (Rs/sh) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
favourable valuations Sun Pharma 1,576 655 BUY 870 27.7 32.8 37.6 23.6 20.0 17.4 19.4 19.5 19.0
Lupin 564 1,254 BUY 2,150 66.1 78.9 97.8 19.0 15.9 12.8 24.4 23.7 23.8
Cadila Healthcare 500 488 NEU 430 12.2 16.9 21.7 40.1 28.9 22.5 21.7 25.4 26.7
Cipla 455 567 NEU 590 16.9 23.5 29.3 33.4 24.1 19.3 11.0 13.7 15.0
Dr. Reddy's 439 2,585 NEU 2,960 85.7 126.8 164.4 30.2 20.4 15.7 10.6 14.2 16.1
Aurobindo 364 623 BUY 930 40.4 44.7 51.8 15.4 13.9 12.0 29.0 24.9 23.0
Alkem Labs 226 1,893 NEU 2,235 76.4 80.4 106.4 24.8 23.5 17.8 23.6 20.9 23.2
Torrent Pharma 220 1,299 BUY 1,700 49.5 68.9 90.2 26.3 18.9 14.4 22.6 26.0 27.7
Glenmark 214 759 BUY 1,100 29.6 39.4 53.6 25.7 19.2 14.1 18.1 19.9 21.7
Divis Labs 166 626 BUY 730 42.4 38.5 45.4 14.8 16.3 13.8 24.1 18.9 19.7
Alembic Pharma 113 599 BUY 675 21.4 25.7 33.8 28.0 23.3 17.7 23.0 23.2 25.1
Granules India 33 143 BUY 180 7.2 8.3 11.7 19.9 17.3 12.2 21.0 19.3 22.8
Source: Company, HDFC sec Inst Research
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GLENMARK: RESULTS REVIEW 4QFY17
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GLENMARK: RESULTS REVIEW 4QFY17
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GLENMARK: RESULTS REVIEW 4QFY17
RECOMMENDATION HISTORY
Feb-17
Nov-16
Jun-16
May-16
May-17
Dec-16
Mar-17
Oct-16
Aug-16
Apr-17
Jan-17
Jul-16
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
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GLENMARK: RESULTS REVIEW 4QFY17
Disclosure:
We, Amey Chalke, MBA & Siddhant Mansukhani, ACA, 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
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GLENMARK: RESULTS REVIEW 4QFY17
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Institutional Equities
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Board : +91-22-6171-7330 www.hdfcsec.com
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