Glenmark Pharmaceuticals' Q1FY19 results (Neutral) - Mixed qtr; Initiates corporate actions to reduce debt
Q1FY19 result highlights
- Revs at Rs21.7bn below our est of Rs22.7bn led by lower sales across most geographies. US sales came lower $105m ($109mn in Q4; est $110m). Domestic grew +8% yoy vs est +10%
- GMs at 65% (65.6% in Q4) vs est of 66%; GPs at Rs14bn vs est of Rs14.9bn. SG&A/Emp cost stood lower at Rs6.04bn/Rs4.5bn vs est Rs7bn/Rs4.5bn driven by cost savings and lower R&D of Rs2.45b (vs Rs3.2b in Q4). EBITDA came at Rs3.5bn/16% vs est of Rs3.2bn/ 14%
- Other income stood higher at Rs1.38bn (includes forex gain of Rs1.25bn vs Rs650mn in Q4). Tax rate stood higher at 29% vs est of 27%. PAT stood higher at Rs2.3bn vs est of Rs1.4bn
- Net debt stood higher at Rs36.62 (+Rs2.58bn qoq)
- Corporate Actions to reduce debt; Transferred its Indian orthopaedic and pain mgt business to an entity controlled by PE firm True North; transferred its API business to a wholly owned subsidiary with plans for minority stake sale at a later date.
- Ryaltris filing acceptance by USFDA and upfront licensing income of high single digit million dollars to be booked in Q2FY19 from GB1032
Key positives: Lower SGA cost; Ryaltris filing acceptance by USFDA
Key negatives: Lower US/India sales, sequential increase in debt increase
Impact on financials: Maintain earning estimates
Valuations & view
While the potential of Glenmark’s R&D driven growth model has always been a compelling story, the volatility in its earnings profile and company’s inability to generate free cash have been dampeners. Notably, the core FY18 EBITDA has reverted to FY15 levels despite maintaining a fairly clean record in terms of regulatory compliance during this period. This is indicative of the base business profitability challenges due to aggressive R&D investments and expansion in operating costs as also a fairly lackluster US business. Given the low exit base in FY18, earnings will likely bounce back strongly going forward when the pace of US approvals picks up. Given successive earnings cuts, the stock still trades at reasonably rich valuations of 19.3x FY19e. Further, net debt continues to stay high at ~2x EBITDA FY19e. This should cap upsides. Maintain Neutral. Triggers for upgrade will be high value ANDA launches in US and / or generation of meaningful cash flows from corporate actions / big ticket out-licensing.
Glenmark Pharmaceuticals is engaged in the discovery of new molecules, both NCEs (new chemical entity) and NBEs (new biological entity), with seven molecules in various stages of clinical development & pre-clinical development. Co.'s Drug Discovery business primarily focuses in the areas of inflammation, metabolic disorders and pain. Co.'s Formulations business focuses on therapeutic areas such as dermatology, anti-infectives, respiratory, cardiac, diabetes, gynecology, CNS, and oncology. Co.'s Glenmark Generics Ltd. business focuses on developing, manufacturing, selling and the distribution of generics through wholesalers, retailers and pharmacy chains.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.