MOSL: GLENMARK PHARMA (Neutral)-Higher other income drives earnings
Glenmark Pharma: Higher other income drives earnings
(GNP IN, Mkt Cap USD2.4b, CMP INR585, TP INR550, 6% Downside, Neutral)
- In-line operating margin; PAT decline capped by higher other income: Revenue declined ~9% YoY to INR21b (our estimate: INR23b), largely off a high base in the US segment. Gross margin shrank ~460bp YoY (-70bp QoQ) to 64.4% due to a change in the product mix and increased raw material prices. This, coupled with higher employee cost (+475bp YoY as % of sales), led to EBITDA margin contraction of ~876bp YoY to 14.6% (our estimate: 15%). Although EBITDA fell 43% YoY, the PAT decline was restricted to 30% YoY (to INR2.3b) due to higher other income, which was driven by a forex gain of ~INR1.3b. Adjusting for the same, PAT stands at INR1.4b (our estimate: INR1.8b).
- High base for US segment drags revenue growth: US sales of USD105m (33% of sales) were down 64% YoY. 1QFY18 had strong sales from potential launches. GNP filed three ANDAs in 1QFY19 and is on track to file three more in 2QFY19. Domestic formulation (DF) business (31% of sales) grew 7.6% YoY to INR6.6b, led by increased market share in key therapies. GNP maintained its momentum in EU sales (10% of sales), which were up 28% YoY in constant currency terms to USD33m. ROW sales (11.5% of sales) grew moderately by 8% YoY, as strong growth in Asia/Africa was offset to some extent by a decline in Russia sales.
- Earnings call highlights: (1) Net debt was up by INR2.6b QoQ to INR36.6b. (2) R&D as % of sales was at ~11%. (3) ~4-4.5% of R&D investment would be toward innovation, while ~8% would be spent for developing generics. (4) GNP guided for ~15 ANDA filings over the next two years from Monroe facility. (5) Break-even of investment in Monroe facility would be by FY21. (5) GNP guided for ~15% CAGR in Latin America over 2-3 years.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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