Glenmark Pharmaceuticals - Sharekhan
Cluster: Apple Green
Recommendation: Buy
Price target: Rs491
Current market price: Rs427Price target revised to Rs491
Result highlights
Better than expected operating performance; higher tax restricts the profit growth: In Q2FY2013 Glenmak Pharmaceuticals (Glenmark) reported a 19% year-on-year (Y-o-Y) increase in net sales to Rs1,255.6 crore, which is 9% higher than our estimate. The base business (excluding the out-licencing income) grew by 34% year on year (YoY) during the quarter. The core operating profit margin (OPM; excluding the out-licencing income) remained virtually flat at 20.4%. However, due to a higher base, the profit before tax (PBT) recorded a Y-o-Y fall of 16.6% to Rs207.4 crore. The effective tax outgo during the quarter stood at Rs47.7 crore as compared with credit of Rs23.8 crore in Q2FY2012; this restricted the profit growth. Adjusting for the out-licencing income, the extraordinary expenses and the marked-to-market (MTM) foreign exchange (forex) loss/gain, the core net profit declined marginally by 6% to Rs144.7 crore, which is in line with our estimate. However, the reported net profit of Rs156.8 crore is higher by 180.6% YoY, thanks to an extraordinary expense of Rs131.7 crore and a foreign exchange loss of Rs85 crore in Q2FY2012.
Good performance all round; growth momentum to continue: The company has shown an impressive growth in most of the geographies and business verticals. Its branded formulation business (ie the specialty business) grew by 30.5% YoY to Rs670 crore, driven by India (up 35.5% YoY), Rest of the World (RoW, up 31.2% YoY) and Latin America (up 27% YoY). The generic formulation business recorded a 47.2% Y-o-Y rise in sales to Rs475 crore on the back of a 44% increase in the US market, a 110% expansion in Europe and a 30% jump in the Latin American business. We believe the growth momentum would continue through H2FY2013.
We revise estimates and price target but maintain Buy recommendation: Taking our cues from the H1FY2013 results and interactions with the management, we have revised upwards our earnings estimates by 10% mainly to factor the expectations of margin expansion in FY2014. Our price target has been upgraded by 5% to Rs491, which includes Rs87 per share for the potential income from the research and development (R&D) pipeline.
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Karishma Suvarna