| Glenmark Pharmaceuticals Ltd |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investors can cash in on Glenmark Pharma’s fast-track growth & also look at relevant dips to accumulate the stock
kiran kabtta
MANY WILL wonder why a stock with a high P/E is being recommended, especially at a time when it is trading near record highs. The answer lies in the potential of Glenmark Pharmaceuticals’ researchoriented business model. The model is already bearing fruits in the form of milestone payments.
As the business acquires traction, gains will only get bigger. Glenmark Pharma’s emphasis on research and drug discovery also stands in contrast to its peers in the domestic pharma industry, most of whom generate their income from selling generics.
A differentiated business model and fast-paced growth, along with sound financials, make Glenmark Pharma an attractive bet for long-term investors. Those who have the risk capital and want to ride the research-driven growth in the domestic pharmaceutical sector can consider accumulating this stock on dips.
BUSINESS:
Glenmark Pharma is an integrated player which manufactures bulk drugs, formulations and branded generics. It also conducts research in small molecules and biologics. It currently operates in over 85 countries with manufacturing facilities in four countries. It is one of the few companies in the country which can boast of successful ventures in innovative research involving new chemical entities (NCE) and new biological entities (NBE).
Glenmark Pharma’s R&D activities and specialty formulation business focus on inflammation, dermatology and metabolic disorders like diabetes and obesity. Glenmark Generics, a wholly-owned subsidiary of the listed parent company, manufactures and markets generic formulations in India and key regulated markets. Glenmark Generics is soon going to be spun off into a separate listed entity.
The company follows the out-licensing model of research. It has a pipeline of 13 molecules comprising eight NCEs and five NBEs, which are in various stages of development up to phase IIB.
GROWTH STRATEGY:
Like most domestic pharmaceutical companies, Glenmark Pharma also aims to increase the share of exports, which currently account for 60% of its consolidated revenues. This is because the export business is more lucrative due to higher margins. The company is looking at a growth of 10-12% from its domestic business. Glenmark Pharma is focussed on building its branded generic business, which currently accounts for over 85% of its revenues. Towards this, the company intends to build or acquire front-end operations in the US, Europe and other key markets outside India. The revenues from out-licensing molecules currently contribute 10% to the total revenues. The company expects to add further milestone payments of $600 million, going forward.
FINANCIALS:
Glenmark Pharma’s revenues have recorded a compound annual growth rate (CAGR) of 45.5% to Rs 1,978.3 crore over the past five years. Profits have witnessed a CAGR of 80.2% during the same period. The growth in profit has been steadily increasing vis-à-vis the growth in revenues since mid-’06, leading to acceleration in the company’s growth momentum. However, being in the growth phase, Glenmark Pharma has a low dividend payout and hence, a lower dividend yield.
Till date, Glenmark Pharma has received $110 million as milestone payments from out-licensing partners like Forest Labs, Tejin Pharma, Merck and Eli Lily. The company’s R&D expenses for FY08 touched Rs 84.6 crore, up 95.4% year-on-year. Data shows that around 30% of the molecules entering phase I of drug development are successful. The company received $69 million during FY08 as milestone payments. In the worst-case scenario, the company expects to receive similar amounts in payments till FY10.
VALUATIONS:
Glenmark Pharma’s research-oriented business model, along with high growth, have earned a premium in the market. On a consolidated basis, the company reported an EPS of Rs 25.4 during the year ended March ’08. However, considering the company’s estimated consolidated earnings for FY09 and FY10, its stock is currently trading at a forward P/E of 19.4 and 14.5 times, respectively. Moreover, the listing of its subsidiary, Glenmark Generics, will further boost the valuations of the parent company.
Despite being in the defensive sector, Glenmark Pharma’s stock has substantially outperformed the BSE Sensex since last year. The company’s share price rose 96.5% during ’07, against the 45% rise in the Sensex. Its share price has already risen 13.1% since the beginning of this year, while the Sensex has fallen 14% during the same period. Investors can cash in on Glenmark Pharma’s fast-track growth and also look at relevant dips to accumulate the stock.
WONDER DRUG
Glenmark Pharma is one of India’s fastest-growing MNCs with total revenues nearing the $500-million mark
The company has three active pharmaceutical ingredient (API) plants, eight finished dosage plants and three research facilities
Glenmark Pharma markets over 250 products in India, while enjoying market leadership in dermatology
It is one of the few companies in the country which can boast of successful ventures in innovative research involving new chemical entities and new biological entities
The company sells 27 products in the generic market of North America, the world’s largest pharmaceutical market, and has acquired over 20-25% of most of its products
Glenmark Pharma’s scrip has outperformed the pharma index since last year. While ET Pharma Index rose by a modest 15%, the company’s scrip soared by close to 100% in ’07. Likewise, while the index is marginally down by 2.5%, the scrip is up by 13% YT
No comments:
Post a Comment