Glenmark Pharmaceuticals: BUY. Glenmark Pharma: A potent pill

The pharma industry has managed to buck the uncertainty in the economy and sustain growth. This was helped by a good show in key overseas markets, such as the US, weakness of the rupee against the dollar and steady performance in the home market.

Given the large generic opportunity in the US due to patent expiries, companies with strong presence in this market may be well-placed to capitalise on this opportunity. Glenmark Pharma falls under this category.

With a large portfolio of drugs awaiting approval by the US drug regulator — Food and Drug Administration — the company seems geared to ride the growth wave in this geography. Back home, Glenmark has managed to consistently grow faster than the market. The stock has corrected by over 22 per cent from its August 2015 peak. This followed global pharma major Sanofi’s decision to return Glenmark’s innovative multiple sclerosis molecule Vatelizumab. However, Glenmark has clarified that it will look to re-license the molecule. 

At the current price of ₹935, the stock trades at about 17 times its 2016-17 earnings, at about 20 per cent discount to the BSE Healthcare Index. Investors with a two- to three-year horizon can use the weakness to buy the stock.

After growing at a modest pace over the last two years, Glenmark’s US business is expected to gain momentum from the second half of the current fiscal.

For the six months ended September, the company’s US revenue grew over 16 per cent year-on-year. The company has 64 products pending approval by the US FDA; this includes high-potential opportunities, such as the generic version of cholesterol lowering drugs Welchol and Zetia. Glenmark has received approval for nine products so far this fiscal; the innovator sales for these drugs stood at $650 million. The revenue ramp up from these products should provide a leg up to the company’s overall revenue growth.

Glenmark, over the last few years, has managed to achieve healthy double-digit growth in the home market. The company’s strength in niche therapies, such as dermatology, and growing market share in chronic therapies, such as cardio-vascular, anti-diabetes and respiratory, has helped it grow faster than the pharma market.

Though the High Court’s decision to stop Glenmark from selling generic anti-diabetes drug sitagliptin is a dampener, the company is evaluating legal options, including appealing against the decision. Meanwhile, launches and steady growth from its existing brands should compensate for the revenue loss from sitagliptin. Revenues from the home market grew almost 24 per cent during the April-September period compared with the same period last year.

The company is also scaling up its presence in the European market.

Glenmark’s active pharma ingredient business, which grew at modest high single digit levels over the last several quarters, is expected to gather pace. For the first half of the fiscal, revenue from its European operations grew by over 18 per cent.

Glenmark’s balance sheet has also improved progressively. Its long-term borrowings have reduced from ₹2,574 crore in March this year to ₹2,065 crore by end-September. The net debt-equity ratio has fallen to 0.8 times in September from 1.3 times in March 2015.

While India, the US and Europe continue to grow at a healthy pace, the company’s Latin American and Russian operations have declined over the last few quarters on two counts. Slowdown in the two economies and weakness of the currency against the dollar have had a bearing on Glenmark’s performance. While this is a concern, the impact may not be material given that these two markets account for only a little over 10 per cent of Glenmark’s consolidated revenue.

For the six months ended September, the company’s consolidated revenue rose 13 per cent to ₹3,564 crore compared with the same period last year. Net profit grew 11 per cent to ₹389 crore.

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