Glenmark Pharma

Jan 02, 2016
Glenmark Pharmaceuticals
Ltd
Jan 02, 2016
Health Care - Biotech & Pharma - Generic Pharma
Glenmark Pharmaceuticals Ltd

Bloomberg Code: GNP IN
BUY
India Research - Stock Broking
Diversified Portfolio to Sustain Momentum
Recommendation (Rs.)
US-Big opportunities ahead:
USFDA approval for Glenmark generics has

slowed from 18 in FY11 to 6 in FY15 even as 37 plain filings are pending for
approval for Glenmark. The improved approval rate (8 in H1-FY16) should sustain
regular growth while incrementally gZetia (with 180 day exclusivity), gZyvox and
gVoricanozole should support an 18% CAGR US formulations growth in FY15-18E.
India-Sustaining above industry growth:
With strong presence in Cardiac,

Derma and Respiratory, Glenmark has sustained an above industry growth in
the last five years through price controls and general slowdown in industry. We
expect new product introductions in respiratory, diabetics and possibly oncology or
complex injectables could sustain a 13% CAGR for India formulations in FY15-18E.
Respiratory to offset externalities in other regions:
Glenmark has tied up

with Celon DPI for gSeretide for launch in 15 European markets, placing it amongst
the earliest entrants. In-licensing from European manufacturers for expansion in
Europe will sustain the strong growth in Europe (CAGR 20% in FY15-18E). Glenmark
is close to factoring a full year of Russian currency depreciation, uncertainty in
Venezuela, dragging AACIS and Latam regions. The markets should see constant
currency growth on existing portfolio and also gSeretide launch in these regions.
Limited downside in Novel Space: Novel portfolio is mostly externally funded,
first in class and highly experimental but Glenmark has demonstrated a strong
turnaround in attracting and sustaining partners for the programs so far. Glenmark
has developed a BEAT platform for MAB, first in class for a validated autoimmune
category and chronic pain. Experimental opportunities can only provide significant
upside with very limited downside.
Valuation and Outlook:
CMP (as on Jan 01, 2016)
924
Target Price
1116
Upside (%)
21
Stock Information
Mkt Cap (Rs.mn/US$ mn)
260643/3935
3M Avg. daily volume (mn)
0.8
52-wk High/Low (Rs.)
1263 / 703
Beta (x)
0.7
Sensex/Nifty
26161 / 7963
O/S Shares(mn)
282.2
Face Value (Rs.)
1.0
Shareholding Pattern (%)

Promoters
46.5
FIIs
36.8
DIIs
6.0
Others
10.7
Stock Performance (%)

Absolute
Relative to Sensex
1M
3M
6M
12M
(6)
(11)
(9)
20
(8)
(11)
(3)
28
Source: Bloomberg
Relative Performance*
yyFurther currency devaluation or approval rate. Product deflation faster than

introduction. Increased customer bargaining power.
120
100
Jan-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Glenmark
Aug-15
Jun-15
Apr-15
May-15
Mar-15
Jan-15
80
Feb-15
Key Risks:
140
Dec-14
Glenmark has been trading in the 20-25 PE range before the one time extraordinary
expenses had impacted the earnings, even as the valuation was unaffected leading
to a spike in the PE valuation multiple. We are valuing Glenmark at its historical
average one year forward PE of 22.7x for its FY18E EPS of Rs.49.1 for a target
price of Rs.1116 per share. We are initiating coverage of Glenmark with a BUY
recommendation and an upside of 21% to current price.
160
Sensex
Source: Bloomberg; *Index 100
Exhibit 1: Valuation Summary (Rs. Mn)

YE Mar (Rs. Mn)
Net Sales
EBITDA
EBITDA Margin (%)
FY13
FY14
FY15
FY16E
FY17E
FY18E
50123
60052
66298
75821
87140
99220
20.5
18.3
15.5
22.2
22.9
22.2
10153
10908
10225
16827
19920
22040
Adj. Net Profit
6200
5423
4753
9831
12071
13844
RoE (%)
23.8
18.8
15.9
25.0
22.2
20.8
Adj. EPS (Rs.)

PE (x)
22.9
20.2
20.0
28.3
17.5
44.7
34.8
26.5
42.8
21.6
49.1
18.8
Source: Company, Karvy Research; *Represents multiples for FY13, FY14 & FY15 are based on historic market price
For private circulation only. For important information about Karvys rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>,
Thomson Publishers & Reuters
Analyst Contact
Sai Prabhakar Y
040 - 3321 6277
sai.yadavalli@karvy.com
Jan 02, 2016

Company Background
Company Financial Snapshot (Y/E Mar)

Profit & Loss (Rs. Mn)
FY15
FY16E
FY17E
FY18E
Net sales
66298
75821
87140
99220
EBITDA
10225
16827
19920
22040
Optg. Exp
Depreciation
Interest
Other Income
56072
58994
2600
2754
1887
2073
205
123
67220
3135
1807
151
77180
3392
1608
205
PBT
5943
12124
15129
17245
Adj. PAT
4753
9831
12071
13844
Tax
1190
2292
3058
3400
Profit & Loss Ratios

EBITDA margin (%)
15.5
22.2
22.9
22.2
P/E (x)
44.7
26.5
21.6
18.8
Net margin (%)

EV/EBITDA (x)
Dividend yield (%)
7.2
13.0
23.8
17.1
0.3
0.2
13.9
14.2
0.2
14.0
12.7
0.2
Source: Company, Karvy Research
Cash Flow (Rs. Mn)
Balance sheet (Rs. Mn)

FY15
FY16E
FY17E
FY18E
Total Assets
96875
106392
116298
132400
Current assets
53233
58874
66198
78026
Net Fixed assets

Other assets
33284
10358
37159
10360
39737
10362
44011
10364
Total Liabilities
96875
106392
116298
132400
Debt
37999
34300
29691
29532
Networth
Current Liabilities
30001
28874
48657
23435
60048
26558
73213
29656
Balance Sheet Ratios

RoE (%)
RoCE (%)
Net Debt/Equity
Equity/Total Assets
P/BV (x)
15.9
17.6
1.3
0.3
7.1
25.0
26.8
0.7
0.5
5.4
22.2
26.9
0.5
20.8
27.2
0.4
0.5
0.6
4.3
3.6
Exhibit 2: Shareholding Pattern (%)

DIIs
6.0%
Others
10.7%
Promoters
46.5%
FY15
FY16E
FY17E
FY18E
PBT
5943
12124
15129
17245
Interest (net)
1887
2123
1859
1654
Depreciation
Tax
Changes in WC
Others
CF from Operations
2600
(3178)
2754
3392
(2292)
(3058)
(3400)
59
95
102
(2673)
(12205)
4817
2563
238
3135
(3496)
13664
(4957)
14035
Capex
(5443)
(6628)
(5713)
(7665)
CF from Investing
(5400)
(6631)
(5717)
(7668)
Change in Debt
(8698)
(5822)
(6468)
(1813)
1992
3002
(7148)
(2493)
Investment
Change in Equity
Dividends
CF from Financing
Change in Cash
42
11325
(635)
(311)
(3)
9504
(680)
(1067)
(3)
0
(680)
799
(3)
0
(680)
3874
Exhibit 3: Revenue Segments (%)
FIIs
36.8%
Source: BSE, Karvy Research
Glenmark Pharmaceuticals Ltd listed on the stock exchange

since 2000, operates in formulations space with exposure
in USA, India, AACIS (Africa, Asia and Commonwealth
Independent States), LATAM (Latin America) and Europe
regions. The company also markets APIs to regulated and
semi-regulated markets. The therapies Glenmark focuses on
are dermatology, anti-infectives, respiratory, cardiac, diabetes,
gynaecology, CNS and oncology. Glenmark has been active in
novel molecule development segment for NBE (New Biological
Entities) and NCE (New Chemical Entities), of which 7 are
under active development. The formulations business has six
manufacturing facilities, four in India and two overseas; and
the facility at Baddi, Himachal Pradesh, India is approved by
Medicines and Healthcare Products Regulatory (MHRA) and
United States Food and Drug Administration (USFDA) for
semi-solids. The overseas facilities are situated in Brazil and
the Czech Republic. The API operations are from 4 facilities
across India and six R&D centers.
API
9.2%
Latin America
& Carribean
11.5%
Europe
Formulations
9.7%
India
Formulations
26.4%
AACIS
12.3%
USA
Formulations
30.8%
Jan 02, 2016

USA to recover with new approvals:

Glenmark USA has had a slower growth as a predominantly generic-generic company facing increasing competition and hence
deflation on one side and slowdown in USFDA ANDA (Abbreviated New Drug Applications) approvals. Compared to 18 in FY11,
the company had 6 approvals in FY15. The existing basket of products is also facing higher customer bargaining power in the
form of channel consolidation amongst the large purchasers and the revenue growth slowed significantly. The GDUFA (Generic
Drug User Fee Amendments) of 2012 was introduced to quicken the average approval time but has had limited success so far.
The company has had 8 approvals in H1-FY16 indicating improvement in situation.
Glenmark has 64 filings pending in various stages; of which 27 are para IV filings leaving 37 clear approvals pending. As the
approval pace picks up, Glenmark can substantially improve its basket of 102 products with new additions. The company is also
focussing on complex injectables and Oncology products in its future filings which should contribute to higher realizations and
margins replacing highly deflated products.
Exclusive launches have had an incremental affect on Glenmark US revenues. Starting from a quarterly run rate of
US$ 40 Mn per quarter in Q1FY11, it had reached US$ 80 Mn per quarter in Q2FY13 as it had 2 exclusive launches and 35
product approvals in the period. It had been range bound at US$ 80-90 Mn in the period, thereafter as it had just 15 approvals and
2 exclusive launches. Glenmark has had 6 approvals in Q1FY16, large scope products of gVoriconazole in Q2FY16 and gZyvox
in Q3FY16. Glenmark sued for 180 day exclusive launch of gZetia with financing from Par Pharmaceuticals and has secured the
same with expected launch in Dec-16. We expect strong growth in US formulations on account of the above known opportunities.
The company has gAlimta, gAzeliac acid (lost recently) in litigation process for an exclusive launch and gWelchol launch has
been delayed even for the exclusivity holder. Any positive outcome from these products could act as a positive surprise over and
above the projected growth in US revenues.
Exhibit 4: US Formulations Dependent on Filings and Approvals
12
100
10
80
60
40
Final Approved (x)
Filed (x)
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
Q1FY12
Q4FY11
0
Q3FY11
0
Q2FY11
20
Q1FY11
Revenue (US$ Mn) (RHS)
India-Maintaining above industry growth:

The company has a strong presence in derma, cardiac and respiratory segments which have helped the company post higher
than industry growth in the last five years. The growth also has been aided significantly by new product addition in the region
which is also higher than the industry average indicating that the company can further consolidate its position in the Indian
industry. The company launched Sitagliptin but had to stop after loss in litigation, which it has replaced with Tenaligliptin which
is also a similar Dipeptidyl Peptidase-4 (DPP-4) inhibitor for anti-diabetic and can plug the hole to an extent. The company has
presence in complex injectables and oncology in other geograhies which provides other untapped therapeutics for the company
in India.
Exhibit 5: Therapies in FY15 (%)
Anti diabetic
8%
Exhibit 6: Glenmark Market Share (%)

12%
Other
11%
9%
Derma 28%
Antiinfectives
14%
6%
3%
Cardiac 23%
Respiratory
16%
Source: All India Origin Chemists and Distributors Limited (AIOCD), Karvy Research
0%
FY14
FY15
FY16E
FY17E
FY18E
Derma
Cardiac
Respiratory
Anti-infectives
Anti diabetic
Other
Jan 02, 2016

Exhibit 7: FY15 Growth (%)
Exhibit 8: Annual Growth (%)
20
30%
15
10%
6.3
3.7
Volume
Industry
3.9
Price
2.9
15%
18%
17%
10%
10%
15%
5%
3.6
New Product
22%
18%
15%
9.9
24%
20%
12.9
10
5
25%
17.4
13%
0%
Total
FY12
FY13
FY11
Glenmark Pharmaceuticals Ltd.
Glenmark Pharmaceuticals Ltd.
FY14
FY15
Industry
Source: All India Origin Chemists and Distributors Limited (AIOCD), Company, Karvy Research
Developing a Novel portfolio:

The company has been developing a novel portfolio which currently consists of MABs (Monoclonal Anti Bodies) and NCEs
(New Chemical Entities). The portfolio is mostly first-in-class and has stayed away from biosimilars in the biologics space. The
portfolio is a mixture of out-licensed, in-licensed and open projects. The highly experimental nature of the portfolio leads to a
quick turnover of projects and Glenmark has been able to replace and secure such turnover at an impressive rate ensuring peak
utilization of its R&D center at Switzerland and other places.
Exhibit 9:
Class
Molecule
Therapy
Partnership
Status
MAB
GBR 1302
HER2xCD3 bispecific
antibody
for Breast Cancer in cases without
overexpressive HER2, a differentiating
factor compared to existing.
Developed on and first molecule

Demonstrated
superiority
in
from proprietary BEAT (Bispecific
Preclinical submitted to initiate
Engagement of Antibodies) platform.
Phase I in Germany.
Started in Q2FY15.
MAB
Outlicensed to Sanofi in 2011 which

has decided not to pursue the same as
Antagonist of the VLA-2 integrin
Vatelizumab
it did not meet the primary end point
for Relapsing Remitting Multiple
(GBR 500)
in Q2FY16. Glenmark will continue to
Scelerosis. First in Class.
look for partners to outlicense once
returned from Sanofi.
In Ph IIa/IIb recruting patients in

USA, Canada, Poland and Russia.
Est 168 patients completion date
of May 2016. Failed to meet
primary end point.
Shown positive data in a Ph IIa
PoC study conducted on 138
patients in Europe and India.
Regulatory
submissions
for
Phase IIb dose range finding
study in US, EU and India are
underway.
NCE
GRC 17536
TRPA1 (Transient Receptor Potential

Ankyrin 1) antagonist for painful Open
diabetic neuropathy. First in class.
MAB
GBR 900
First in class MAB. Inlicensed from

Chronic Pain targeting TrkA first to be
Layline Genomics Italy. Ongoing from Phase I in UK ongoing.
in the clinical phase.
FY11.
NCE
MAB
NCE
GRC 27864
GBR 830
Crofelemer
Phase I single ascending and

Pain
management
targeting
Option agreement with Forest labs multiple ascending dose nearing
mPGES-1 (Microsomal Prostaglandin
started in Q3FY13 and received completed with no safety
E synthase-1) inhibitors such as
US$ 15 Mn so far.
concerns. Pre-IND USA meeting
osteoporosis and rheumatoid arthritis.
in Q4FY16.
Autoimmune disease targeting OX40
MAB, a validated target developed
Open
inhouse at Switzerland. Started in
Q4FY13.
HIV associated diarrhea.
Phase II studies for Atopic

Dermatitis patients are being
initiated in the US and for
Coeliacs Disease in EU and US.
Salix its partner in USA commercialized

for USA. Glenmark is the sole supplier
Commercialized in USA (Salix)
of API and is filing in other 140 regions
and is approved in four others and
where it holds the commercialization
13 remaining (Glenmark).
rights. It is also supplying API to jaguar
Animal Health.
Jan 02, 2016

The company has also discontinued some prospects on weak data from clinical trials. GBR 401 for anti CD 90 has been stopped
in Q4FY13. Revlimast a big opportunity in asthma and anti inflammatory failed to meet primary end point in Q4FY14. GBR 600
for anti platelet condition had been stopped in Q1FY12. In each of the instances, the company has been able to replace the
freed capacity for reasearch partnership quickly indicating a strong pipeline of reserach and willingness of partners to seek
experimental opportunities pursued by Glenmark, until now.
Respiratory driven strong growth to offset externalities:

Glenmark has commercialized Fluticasone/ salmeterol (gSeretide/Advair), a US$ 8 Bn product for the innovator expected to
lose US patent by Feb-16, in several semi-regulated markets. Glenmark is positioned along with other early generic entrants in
these markets for a niche product which is hard to manufacture and hard to commercialize as well. It has tied up with Celon to
manufacture a DPI inhaler (Dry Powder Inhaler) for 15 European markets. Historically, in Europe, the company has been able to
help originators expand across Europe by In-licensing their products, which should drive further growth. Glenmark Europe has
posted a CAGR of 31% in FY10-15 and we expect a CAGR of 20.3% in FY15-18E.
Venezuela in LATAM (Latin America) region and Russia in AACIS (Africa, Asia and Commonwealth Independent States)
region have been impacted. The Russian currency has depreciated from average 33 Rubles to Dollar to 58 in the last year
impacting the US$ realized for the company, forex losses and conservative
receivable management impacting sales. Russia has shown strong growth
on a constant currency basis and will be further driven by gSerteide launch
in H2-FY15. On a consolidated basis, much of the currency depreciation
would have been factored in post H2FY16 and should return higher rate
of growth in the region. In the LATAM region, the company has been
aggressively expanding in Mexico and Venezuela; and moderately in Brazil
on account of slower approval rate in the region. Venezuela has been in
volatile environment making repatriation of currency and the exchange
rate for the same volatile. We expect a cautious approach in the region will
impact the growth in the region.
Exhibit 10:
100%
89%
27% 25%
4%
18% 18%
FY18E
15% 15%
FY17E
15% 17%
FY16E
36%
FY14
36% 30%
FY11
0%
24%
FY13
25%
45%
25%
FY12
50%
FY15
75%
Europe Formulations (%)

Latin America & Carribean (%)
Exhibit 11: Russian Currency Depreciation impacting AACIS Revenue Growth (%)
90%
70%
50%
30%
10%
RUB VS USD (%)
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
-50%
Q2FY12
-30%
Q1FY12
-10%
AACIS Growth (%)
Source: Reserve Bank of India (RBI), Karvy Research
Jan 02, 2016

Exhibit 12: Business Assumptions
Y/E Mar (Rs. Mn)
FY14
FY15
FY16E
FY17E
15105
17490
20237
22533
15.3
15.8
15.7
11.3
FY18E Comments
India Formulations
Revenue
Revenue Growth (%)
The company has grown faster than industry growth on

24822 the back of strong presence in three-four segments. We
expect consolidation in those segments.
10.2
USA Formulations
Revenue
Revenue Growth (%)
20270
20398
24503
28974
20.0
0.6
20.1
18.2
The approval rate seems to have improved with 8

approvals in FY16E. We expect the higher product
33644
basket and strong launches in the next three years
should support a strong growth.
16.1
AACIS
Revenue
9869
8123
8603
9735
Revenue Growth (%)
16.2
(17.7)
5.9
13.2
Revenue
5061
6445
8057
9507
Revenue Growth (%)
35.9
27.4
25.0
18.0
Revenue
4046
7640
7946
9137
Revenue Growth (%)
16.7
88.8
4.0
15.0
We expect the currency depreciation of Russian Ruble

to continue into H2FY16E before it is fully factored into
10904
sales. We expect marginal offset from new launches to
partially offset the devaluation.
12.0
Europe Formulations
We expect the recent seretide launch and continued
11218 In-licensing efforts to support the continued momentum
of the company in the region.
18.0
Latin America & Carribean

The company is going slow in Venezuela segment in the
10508 face of volatility in addition to the continued slow growth
rate in Brazil.
15.0
API
The company has filed for a mix of large and niche
filings in its API portfolio with expiries in the next three
8124
years, which should support international and also for
in-house requirements.
Revenue
5353
6053
6477
7254
Revenue Growth (%)
34.6
13.1
7.0
12.0
Revenue
60052
66298
75821
87140
99220
EBITDA
10908
10225
16827
19920
22040
5423
4753
9831
12071
13844
12.0
Consolidated
Revenue Growth (%)
EBITDA Margins (%)
Adjusted PAT
Adj. EPS (Rs.)

Adj. EPS Growth (%)
Net CFO
Capex
Free Cash Flow
19.8
18.2
20.0
10.4
15.4
17.5
14.4
22.2
34.8
14.9
22.9
42.8
13.9
22.2
49.1
The earnings of the company are expected to surge on

account of low one time expenses faced in FY14-15 and
14.7
decreasing debt cost on a top line which should deliver
comparatively higher growth.
(12.7)
(12.4)
98.9
22.8
8537
4817
2563
13664
14035
(3766)
(5443)
(6628)
(5713)
(7665)
4771
(626)
(4066)
7950
The company has litigation related payouts scheduled

in the period.
6370
Jan 02, 2016

Exhibit 13: Karvy vs Consensus
Karvy
Consensus
Divergence (%)
FY16E
75821
77502
(2.2)
FY17E
87140
97644
(10.8)
FY18E
99220
108933
(8.9)
FY16E
16827
17110
(1.6)
FY17E
19920
25073
(20.5)
FY18E
22040
26397
(16.5)
FY16E
34.8
34.5
0.9
FY17E
42.8
54.5
(21.5)
FY18E
49.1
59.3
(17.2)
Comments
Revenues (Rs. Mn)
EBITDA (Rs. Mn)

We are conservative in our estimates of revenue
and margins considering the approval rate in
different geographies.
EPS (Rs.)
Source: Bloomberg, Karvy Research
Diversified presence helps revenue growth:

The company had built-up presence across regions in India, USA, AACIS, Europe, LATAM and API (Active Pharmaceutical
Ingredients) from India. By pursuing suitable portfolio of products in the regions, cross leveraging and coordinating across
regions, the revenue growth gained from the diversified presence. The lower base in Europe and LATAM, gaining product
approvals in US and adding geographies across AACIS have helped revenue growth of CAGR of 22% in FY10-15. In FY15,
US was affected by slow down in approvals, LATAM by Venezuela, AACIS by Russia and comparatively slower growth in India
simultaneously. We expect strong launches in India and USA, factored externalities in Russia and Venezuela should help growth
normalize at a CAGR of 14% in FY15-18E.
Exhibit 14: Consolidated Revenue
120000
Exhibit 15: Segment-wise Break-up (Rs. Mn)
36.3%
100000
24.7%
75821
60052
FY15 66298
14.9% 13.9%
30%
30000
20%
20000
10%
0%
FY16E
FY12
FY14
20000
FY13
40206
40000
50123
10.4%
40000
Sales (Rs. Mn)
FY18E
60000
99220
14.4%
87140
19.8%
FY17E
80000
40%
Growth (%)
Exhibit 16:
25000
20000
22.2%
22.2%
18%
22040
19920
16827
14%
FY18E
FY17E
10%
FY16E
FY15 10225
10908
EBITDA (Rs. Mn)
26%
22%
15.4%
FY14
FY12 7144
5000
10153
20.3%
10000
22.9%
18.2%
FY13
15000
FY10
FY11
1
2
India Formulations
FY12
FY13
FY14
FY15
FY16E
FY17E FY18E
6
7
8
USA Formulations
AACIS
Europe Formulations
Latin America & Carribean
API
Margins to recover on improved operating conditions:
17.8%
10000
EBITDA Margin (%)
Glenmark had higher than normal exchange losses, primarily

from Russian operations, legal charges and provisions
primarily relating to TARKA and dispute with the State of Texas
(which have been provisioned earlier), one time expenses
relating to the amalgamation of Glenmark Generics into the
company (Rs. 650 Mn). We expect EBITDA margins to improve
as the one time expenses have been settled, provisions made
for and currencies factoring a significant impact in FY15
itself. Operationally, Glenmark is now focussing on higher
margin profile in US by replacing highly deflated products
and improved product mix across other regions by increasing
traction of gSeretide to gradually sustain margins above 22%
level in the period FY15-18E.
7
Jan 02, 2016

Easing Capital Structure:

Glenmark operated at a marginally higher level of debt and more importantly the forex volatility also impacted the profitability.
Glenmark raised Rs.9,450 Mn from issue of shares through preferential allotment in early FY16 primarily to reduce the debt
outstanding. We expect the debt equity ratio to be below unity in the FY15-18E easing the capital structure. The companys
repayment ability, as measured by the debt servicing ratio, was a bit precarious in FY15 and should return to a comfortable
range in the period. While the interest coverage was strong all through, the lower interest burden from paid-off debt apart from
the expanding margins will drive higher profitability in the period.
FY14
0.5
Debt-Equity (x)
0.4
1.0
0.0
6381 6257
1500
1000
EBIT (Rs. Mn)
DSCR (x)
2500
500
FY16E
FY13
0.7
1654
7830
FY15
FY12
Debt (Rs. Mn) (LHS)
1.3
8948 8788
18853
2000
14196
FY14
1.1
5000
16936
1859
FY13
1.0
1600
2123
1886 1902
10000
2.0
1.2
1466
FY12
0.9
1.0
1605
FY11
1.0
FY11
10000
15000
3.0
2.1
FY17E
1.5
FY16E
1.5
FY15
2.1
20000
4.0
3.2
30000
20000
FY18E
5.0
4.7
FY18E
40000
Exhibit 18:
FY17E
Exhibit 17:
Finance costs (Rs. Mn)
Returns to normalize in a higher range:

In a period of exceptional expenses impacting profitability, the returns declined in FY15. We expect as the profit unaffected by
events and currencies as mentioned and lower finance cost should improve along with marginal improvement in asset utilization.
Even with lower leverage in the capital structure, the returns should normalize at 20% range by FY18E.
Exhibit 19: Dupont Breakup of Returns
Exhibit 20: RoE Vs RoCE
100%
30%
26.2%
75%
50%
25%
0%
23.8%
20%
RoE (%)
Financial leverage (RHS) (x)
20.6%
27.2%
25.0%
FY13
FY14
FY15
RoE (%)
20.8%
15.9%
15%
FY12
22.2%
17.6%
20.5%
18.8%
0
Total Asset Efficiency (%)
26.9%
25%
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Operational efficiency (%)
26.8%
26.4%
FY16E
FY17E
FY18E
RoCE (%)
Exhibit 21: Company Snapshot (Ratings)

Low
1
High
2
Quality of Earnings
Domestic Sales
Exports
Net Debt/Equity
Working Capital Requirement

Quality of Management
Depth of Management
Promoter
Corporate Governance
33
33
33
33
33
33
33
33
33
The company has had higher debt in the capital structure until recently, which has been addressed to an extent recently.
8
Jan 02, 2016

Valuation & Outlook

Glenmark can look forward to regaining the momentum interrupted in FY15. In USA, the company has strong launch opportunities
in gZyvox, gZetia and gVoricanozole. In litigation process are gAlimta and gAzeliac acid; and another opportunity is uncertain
on timing gWelchol. GDUFA has a targeted plan for reducing average approval time significantly and any improvement in the
same should work in the favour of companies like Glenmark which have significant filings pending. In India, the company has
sustained a strong momentum and can be expected to increasing presence in other therapeutics apart from the therapies it
has consolidated. The other regions are expected to regain the earlier momentum after factoring in externalities. In the novel
space, the company can look forward to milestones for existing partnerships or a new licensing announcement. GBR 900, BEAT
platform and GRC 27864 are some of the opportunities which may be monetized in the near term from milestones or initiating
new deals.
Glenmark has been trading in the 20-25x PE range before the one time extraordinary expenses had impacted the earnings, even
as the valuation was unaffected leading to a spike in the PE valuation multiple. We are valuing Glenmark at its historical average
one year forward PE of 22.7x for its FY18E EPS of Rs.49.1 for a target price of Rs.1,116 per share. We are initiating coverage of
Glenmark with a BUY recommendation and an upside of 20% to current price.
Exhibit 22: 1Yr Forward Vs TTM PE
70
50
30
Dec-15
Oct-15
Aug-15
Jun-15
Feb-15
Apr-15
Apr-15
Dec-14
Oct-14
Feb-15
Aug-14
Jun-14
Feb-14
Jun-14
Apr-14
Dec-13
Oct-13
Apr-14
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Aug-12
Feb-12
Oct-11
Dec-11
Aug-11
Jun-12
Jun-11
Apr-11
Feb-11
Oct-10
Dec-10
Aug-10
Jun-10
Apr-10
10
Source: BSE, Company, Karvy Research
Exhibit 23: PE Band

1400
1050
700
350
Price
15x
20x
25x
30x
40x
Dec-15
Oct-15
Aug-15
Jun-15
Dec-14
Oct-14
Aug-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
Apr-11
50x
Source: BSE, Company, Karvy Research
Key Risks
yyFurther currency devaluation: Glenmark operates in several different regions which involve one or two possible currency
exchanges before they are reflected in the operational statements. With substantial movement in cross currency rates owing
to significant movement in Quantitative Easing (QE) by central bankers of various regions, the currencies have been volatile.
yySlowdown in Approval rate: The company has faced slow down in approval rates for USA, Brazil and India. The company
is dependent on improvement of the same for its revenue growth.
yyProduct deflation faster than introduction: The focus on generics manufacturing has been increasing from higher number
of suppliers increasing the bargaining power of the customers resulting in a faster than earlier deflation in generic prices.
9
Jan 02, 2016

Financials
Exhibit 24: Income Statement
YE Mar (Rs. Mn)
FY13
FY14
FY15
FY16E
FY17E
FY18E
Revenues
50123
60052
66298
75821
87140
99220
Operating Expenses
39971
49144
56072
58994
67220
77180
14.0
(10.3)
(15.1)
43.9
3.0
(2.8)
Growth (%)
EBITDA
Growth (%)
24.7
10153
Depreciation & Amortization
1270
EBIT
8948
PBT after ext. ordinary items
7390
Other Income
Interest Expenses
Tax
Adjusted PAT
Growth (%)
65
1557
1107
6200
34.7
19.8
10908
2168
10.4
10225
14.4
16827
14.9
19920
13.9
22040
2600
2754
3135
3392
8788
7830
14196
16936
18853
6969
5943
12124
15129
17245
9831
12071
13844
FY17E
FY18E
7370
11243
15774
17218
48
1820
1513
5423
205
1887
1190
4753
(12.5)
(12.3)
FY14
FY15
123
2073
2292
106.8
151
1807
3058
22.8
205
1608
3400
14.7
Exhibit 25: Balance Sheet

YE Mar (Rs. Mn)
Cash & Cash Equivalents
Sundry Debtors
Inventory
Loans & Advances

Investments
Gross Block
Net Block
CWIP
Miscellaneous
FY13
6052
7948
7637
FY16E
6571
16400
21563
25118
28401
31551
7852
13951
12962
12800
12236
32968
37786
42017
48645
54358
62023
4161
2009
4589
6968
9019
11663
8435
465
28286
58
9329
499
30959
78
12690
473
33284
121
13892
478
37159
124
Total Assets
71710
86336
96875 106392
Debt
27649
32670
37999
Current Liabilities & Provisions

Other Liabilities
Total Liabilities
Shareholders Equity
Reserves & Surplus
Total Networth
Total Networth & Liabilities
13568
2619
43836
271
27603
27874
71710
21109
2592
56370
271
29694
29966
86336
24857
19809
4017
3626
66874
271
29730
30001
34300
57735
282
48375
48657
96875 106392
484
39737
128
35897
11748
490
44011
131
116298
132400
29691
29532
23322
3236
56250
282
59766
60048
116298
26811
2845
59187
282
72931
73213
132400
10
Jan 02, 2016

Exhibit 26: Cash Flow Statement
YE Mar (Rs. Mn)
FY13
FY14
FY15
FY16E
FY17E
FY18E
PBT
7390
6969
5943
12124
15129
17245
Depreciation
Interest
Tax Paid
Inc/dec in Net WC
Others
Cash flow from operating
1270
1428
(1650)
(2685)
727
6479
2168
1886
(2629)
(2901)
3044
8537
2600
1902
(3178)
2754
2123
(2292)
(2673)
(12739)
4817
2563
224
593
3135
1859
(3058)
(4047)
646
13664
3392
1654
(3400)
(5460)
605
14035
Inc/dec in capital expenditure
(4710)
(3766)
(5443)
(6628)
(5713)
(7665)
Cash flow from investing
(4641)
(3681)
(5400)
(6631)
(5717)
(7668)
Inc/dec in investments
Inc/dec in borrowings
Issuance of equity
Dividend paid
Interest paid
Others
Cash flow from financing
Effect of exchange rate changes

Net change in cash
69
4475
65
(643)
85
2046
125
(632)
42
4807
20
(635)
(3)
(3699)
9504
(680)
(3)
(4609)
(680)
(3)
(160)
(680)
(1465)
(1943)
(1792)
(2123)
(1859)
(1654)
1952
(980)
1992
3002
(7148)
(2493)
(311)
(1067)
799
3874
(480)
(940)
2851
(577)
(1980)
1896
(409)
(1719)
0
0
0
0
0
0
Exhibit 27: Key Ratios

YE Mar
FY13
FY14
FY15
FY16E
FY17E
FY18E
EBITDA Margin (%)
20.3
18.2
15.4
22.2
22.9
22.2
Dividend Payout (%)
8.7
10.0
11.4
5.7
4.7
4.1
EBIT Margin (%)
17.9
Net Profit Margin (%)
12.4
RoE (%)
23.8
Net Debt/Equity (x)

RoCE (%)
1.0
26.4
14.6
9.0
1.1
18.8
20.6
11.8
18.7
19.4
19.0
7.2
13.0
13.9
14.0
15.9
25.0
22.2
20.8
1.3
17.6
0.7
0.5
26.8
26.9
0.4
27.2
Exhibit 28: Valuation Parameters

YE Mar
FY13
FY14
FY15
FY16E
FY17E
FY18E
EPS (Rs.)
22.9
20.0
17.5
34.8
42.8
49.1
102.9
110.5
110.6
172.4
212.8
259.5
DPS (Rs.)
BV (Rs.)
PE (x)
P/BV (x)
EV/EBITDA (x)
EV/Sales (x)
2.0
20.2
4.5
14.5
2.9
2.0
28.3
5.1
16.3
3.0
2.0
44.7
7.1
23.8
3.7
2.0
26.5
5.4
17.1
3.8
Source: Company, Karvy Research; *Represents multiples for FY13, FY14 & FY15 are based on historic market price
2.0
21.6
4.3
14.2
3.2
2.0
18.8
3.6
12.7
2.8
11
Jan 02, 2016

Stock Ratings
Buy
Sell
Hold
Absolute Returns
> 15%
5-15%
<5%
Connect & Discuss More at

1800 425 8283 (Toll Free)
research@karvy.com
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in
You
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Jan 02, 2016

Health Care - Biotech & Pharma - Generic Pharma

Glenmark Pharmaceuticals Ltd

India Research - Stock Broking

Diversified Portfolio to Sustain Momentum

US-Big opportunities ahead:

USFDA approval for Glenmark generics has

India-Sustaining above industry growth:

With strong presence in Cardiac,

Respiratory to offset externalities in other regions:

Glenmark has tied up

Limited downside in Novel Space: Novel portfolio is mostly externally funded,

Valuation and Outlook:

CMP (as on Jan 01, 2016)

3M Avg. daily volume (mn)

52-wk High/Low (Rs.)

Face Value (Rs.)

Shareholding Pattern (%)

Stock Performance (%)

yyFurther currency devaluation or approval rate. Product deflation faster than

Source: Bloomberg; *Index 100

Exhibit 1: Valuation Summary (Rs. Mn)

EBITDA Margin (%)

Adj. Net Profit

Adj. EPS (Rs.)

Jan 02, 2016

Company Financial Snapshot (Y/E Mar)

Profit & Loss Ratios

Net margin (%)

Dividend yield (%)

Source: Company, Karvy Research

Cash Flow (Rs. Mn)

Balance sheet (Rs. Mn)

Net Fixed assets

Balance Sheet Ratios

Source: Company, Karvy Research

Exhibit 2: Shareholding Pattern (%)

Source: Company, Karvy Research

Exhibit 3: Revenue Segments (%)

Source: BSE, Karvy Research

Glenmark Pharmaceuticals Ltd listed on the stock exchange

Source: Company, Karvy Research

Jan 02, 2016

USA to recover with new approvals:

Final Approved (x)

Revenue (US$ Mn) (RHS)

Source: Company, Karvy Research

India-Maintaining above industry growth:

Exhibit 6: Glenmark Market Share (%)

Jan 02, 2016

Exhibit 8: Annual Growth (%)

Glenmark Pharmaceuticals Ltd.

Developing a Novel portfolio:

Developed on and first molecule

Outlicensed to Sanofi in 2011 which

In Ph IIa/IIb recruting patients in

TRPA1 (Transient Receptor Potential

First in class MAB. Inlicensed from

Source: Company, Karvy Research

Phase I single ascending and

HIV associated diarrhea.

Phase II studies for Atopic

Salix its partner in USA commercialized

Jan 02, 2016