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Elara Capital
Glenmark Pharmaceuticals (Buy)
CMP: ₹453.3
Target: ₹585
On June 22, Glenmark Pharmaceuticals received a complete response (CRL) letter from the USFDA on new drug application (NDA) submission for Rylatris used to treat allergic rhinitis. The CRL cites deficiency in drug master file (DMF) pertaining to one of the active pharmaceutical ingredients (API) and its manufacturing facilities; however, it does not list any deficiency in clinical data. This would delay Rylatris launch by 6-9 months versus FY20-end. Given it is branded launch, we expect sales ramp-up to be gradual.
GNP has corrected about 28 per cent in the past three months versus the BSE Pharma Index fall of 10 per cent on concerns of weak Q4 US sales and delay in Rylatris. We believe concerns are overdone and expect base business profitability to improve in FY20 (+17 per cent EBITDA growth) on flat R&D cost and cost-cutting initiatives on the personnel front. Further, debt reduction via an API stake sale would remove major overhang. At the CMP, the stock is trading at an attractive valuation of around 7.8x FY21E EV/EBITDA and 12x FY21E P/E..We upgrade stock to Buy from Reduce with a new TP of ₹560 from ₹585 on 15x (unchanged) FY21E P/E.
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