Q2FY20 result highlights
Impact on financials: Maintain earnings estimates
Valuations & view
After a series of disappointing quarters / developments, Glenmark finally seems to be turning the corner as reflected in its solid operational performance across revenue and cost management during Q2. We believe a combination of capex optimization along with improvement in operating performance should enable the company to finally start generating FCF from FY21 onwards and address a key investor concern. Ability to raise capital in the innovative R&D business can further ease the pressure of innovative R&D spends on cash flow generation. While company’s patchy earnings performance and inability to generation FCF in the past are concerns, with ~Rs36bn of branded domestic formulation sales along with ~Rs20bn of branded formulation exports and a profitable US business apart from sizeable API / EU franchises, we see significant upside opportunity in Glenmark’s current valuations of ~Rs120bn. Ability to generate value in innovation R&D business can provide further upsides. Upgrade to Outperformer with TP of Rs470 (13x FY21E PER).
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.
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