MOSL: GLENMARK PHARMA (Neutral)-Miss on all fronts led by muted US/ROW sales & higher interest/tax rate
GLENMARK PHARMA: Miss on all fronts led by muted US/ROW sales & higher interest/tax rate
(GNP IN, Mkt Cap USD1.5b, CMP INR384, TP INR400, 4% Upside, Neutral)
- India/Europe/API drive revenue growth: 1QFY20 revenues grew 7.3% YoY to INR22.8b (v/s est. INR25.9b), led by healthy growth in (a) Domestic Formulation (33% of sales), up 13.4% YoY to INR7.5b, (b) Europe business (11% of sales), up 10.5% YoY to INR2.4b, and (3) the API business (10% of sales), up ~10% YoY to INR2.3b. US business (32% of sales) grew at a subdued rate of 4% YoY to INR7.3b, (USD105m, flat on constant currency basis). RoW also grew moderately at 5.4% YoY to INR2.6b. Overall, revenue growth was impacted by 17% YoY decline in the LATAM business to INR811m.
- EBITDA margin stable YoY; Higher interest/Tax rate leads PAT decline: Gross margin at 64.5% remained flat YoY. Sequentially, GM contracted 140bp. Adj. for INR250m forex cost, EBITDA margin contracted 30bp YoY to 14.3% (v/s est. 15.5%) due to higher other expenses (+150bp YoY as % of sales). EBITDA at INR3.3b (v/s est. INR4b) grew marginally by 5.5%. PAT at INR1.3b (v/s est. INR2.1b) declined 12.4% YoY on higher depreciation, interest cost and tax rate.
- Concall highlights: (1) While there exist few niche opportunities in the near term, GNP has guided for 5-10% YoY growth in US generics, considering price erosion in the base business. (2) GNP has maintained overall revenue growth guidance of 10-15% despite moderate revenue growth in 1QFY20. (3) R&D spend was INR3b (13% of sales) for 1QFY20. (4) GNP had gross debt/net debt of INR46b/INR35b at end-1QFY20. (5) GNP has guided for total capex of INR7b, with INR4b for tangibles and INR3b for intangibles.
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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