MOSL: GLENMARK PHARMA (Neutral)- US growth to pick up-high debt remains an overhang
Glenmark Pharma:US growth to pick up; high debt remains an overhang
(GNP IN, Mkt Cap USD2.8b, CMP INR627, TP INR650, 4% Upside, Neutral)
- Net sales increased marginally by ~2% YoY (-5% QoQ) to INR22.2b (4% miss). EBITDA declined ~11% YoY to INR3.6b (2% beat), with the margin coming in at 16% (-230bp YoY, -740bp QoQ). Employee expenses included annual employee bonus of ~INR1.1b in 2Q. Adjusted for this, EBITDA came in below the previous quarter’s level (note that 1QFY18 included Zetia sales with >80% GM). According to management, the improvement in margins (adjusted for employee bonus) can largely be attributed to cost rationalization.
- US – key launches to drive growth; base business erosion to continue: US sales for GNP stood at USD113m, significantly below USD162m in 1QFY18, due to loss of Zetia exclusivity. The company expects US sales to reach >USD125m in 3Q, led by ramp-up of existing launches (no new launches assumed). We expect US sales to inch up in 2H on the back of Statera and Nitro Glycerin ramp-ups and the expected launch of Welchol and Epiduo. However, base business erosion for GNP remained high at ~13% YoY. It reported domestic growth of ~8% YoY (adjusted for excise duty impact).
- Earnings call highlights: 1) GNP revised down its sales growth guidance for FY18 to ~8%, from 8-10% previously. EBITDA margin guidance is intact (flat YoY). 2) Net debt increased to INR34.98b from ~INR33.6b in 1QFY18; the company expects net debt to come down to INR33.5b by end-FY18. 3) R&D as % of sales is expected to be 11% in FY18. 4) LATAM recorded >20% YoY growth (excluding Venezuela). 5) Effective tax rate in FY18 to be ~25%. 6) GBS- 301 filing to happen in 1QCY18 in US. 7) Cash tax outflow remained high in the quarter at ~INR1.8b.​
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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