RESULTS REVIEW 1QFY17

16 AUG 2016

Glenmark
NEUTRAL
INDUSTRY

PHARMA

CMP (as on 12 Aug 2016)

Rs 845

Target Price

Rs 925

Nifty

8,672

Sensex

28,152

KEY STOCK DATA

Bloomberg

GNP IN

No. of Shares (mn)

282

MCap (Rs bn) / ($ mn)

238/3,563

6m avg traded value (Rs mn)

507

STOCK PERFORMANCE (%)

52 Week high / low

Rs 1,263/671
3M

6M

12M

Absolute (%)

(1.7)

22.0

(18.4)

Relative (%)

(10.8)

(0.4)

(20.7)

SHAREHOLDING PATTERN (%)

Promoters
FIs & Local MFs

46.48
5.4

FIIs

36.66

Public & Others

11.46

Source : BSE

Amey Chalke
amey.chalke@hdfcsec.com
+91-22-6171-7321

Good, not great

Glenmarks strong top line performance (16% YoY)
and sequential improvement in profitability led to
24% YoY earnings growth in 1QFY17. Revenues
increased to Rs 18.8bn with US business growing at
24% YoY. EBITDA margins at 17%, showed 800bps
sequential improvement over a favourable base.
New product launches, price hike in gMupirocin and
ramp up in existing products drove US revenues
during this quarter. With gZetia launch scheduled in
3QFY17 (under 180days exclusivity) coupled with a
few more launches (gCrestor, gNitroglycerin), we
expect US revenues to grow at a fast clip in 2HFY17.
Going ahead we see 18% revenue CAGR led by strong
growth (33% YoY) in the US on gZetia launch.
At CMP, GNP trades at 23x FY17E and 19x FY18E, 1015% discount to sector average. Although GNPs top
line performance is expected to remain robust across
most of the key geographic segments, its below
average profitability, weak return ratios, substantial
FCTR losses, growing debt and tepid cash generation
justify a lower P/E. Initiate coverage with NEUTRAL
rating and a TP of Rs 925 (18x FY18E EPS).
Financial Summary
(Rsmn)
Net Sales
EBIDTA
APAT
Diluted adj. EPS (Rs)
P/E (x)
RoE (%)

1QFY17
18,832
3,192
2,268
12.0

1QFY16
16,258
3,374
1,829
9.7

YoY (%)
15.8
(5.4)
24.0
24.0

Highlight of the quarter

Apart from US, Europe and RoW (Russia) also

registered +20% YoY growth in 1Q, driven by
German tenders and strong growth (50%+) in
Russian market. Expect growth to normalise in
coming quarters.

Latam segment declined 29% YoY as Venezuela

contribution became negligible during this

quarter. At present, GNP has USD$ 45mn cash in
Venezuelan subsidiary.

In US, GNP has filed four products in 1Q and likely

to file five more in the next quarter. Overall, 62

ANDAs are still pending with USFDA. Management
expects 2Q to be better than 1Q owing to gCrestor
launch in the US. Welchol launch is expected in
FY18.

India business growth would be >15% due to

Sitagliptin ban and NLEM impact in FY17. R&D

expense stood at 10.2% of sales in 1Q.

Near term outlook: Stock to remain range bound

as earnings upside from gZetia is largely priced in.

4QFY16
21,740
1,952
1,488
7.9

QoQ (%)
(13.4)
63.6
52.4
52.4

FY15
65,953
11,751
4,753
17.5
48.2
15.9

FY16
76,340
14,172
7,019
24.9
34.0
19.3

FY17E
92,205
23,521
14,357
37.6
22.5
29.1

FY18E
1,07,346
25,340
15,780
45.9
18.4
24.9

Source: Company, HDFC sec Inst Research # Consolidated

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

GLENMARK: RESULTS REVIEW 1QFY17

Quarterly Financials Snapshot (Consolidated)

US, Europe and RoW drove
top line

EBITDA margins improved

sequentially; YoY decline is
largely on the back of loss of
sales in Venezuela region

Employee cost attained new

base at Rs3.7 bn (19.8% of
sales) on the back fresh
recruitment across markets

Other income was higher in

1Q as GNP received licensing
income for its NME products.

Particulars
Net Sales
Material Expenses
Employee Expenses
Other Expenses
EBITDA
Depreciation
EBIT
Other Income
Interest Cost
PBT
Tax
RPAT

1QFY17
18,832
6,236
3,720
5,684
3,192
642
2,550
1,358
430
3,477
1,209
2,268

1QFY16
16,258
4,845
2,863
5,177
3,374
654
2,721
273
419
2,574
745
1,829

YoY (%)
16
29
30
10
(5)

QoQ (%)
(13)
(16)
7
(36)
64

24

4QFY16
21,740
7,439
3,482
8,868
1,952
584
1,368
1,189
475
2,082
594
1,487

1QFY17
33.1
19.8
30.2
17.0
34.8
12.0

1QFY16
29.8
17.6
31.8
20.8
28.9
11.2

YoY (bps)
331
215
(166)
(380)
584
79

4QFY16
34.2
16.0
40.8
9.0
28.5
6.8

QoQ (bps)
(111)
374
(1,061)
797
623
520

(6)

35

86

67
52

Source: Company, HDFC sec Inst Research

Margin Analysis
Material Expenses % Net Sales
Employee Expenses % Net Sales
Other Expenses % Net Sales
EBITDA Margin (%)
Tax Rate (%)
APAT Margin (%)
Source: Company, HDFC sec Inst Research

Page | 2

GLENMARK: RESULTS REVIEW 1QFY17

India (INR m)

22.5
5

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

RoW business Growth Trajectory

EBITDA Margin

YoY growth (%)

EBITDA (INR m)

55
36
25

25

21

15

23

20

22

23

21

23
20

1QFY17

Source: Company, HDFC sec Inst Research

SRM (INR m)

10.4

12.7

2QFY14

8
4

1QFY14

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

EBITDA margin (%)

21

21

20

18

14

20
13

16

1.9

1QFY17

4QFY16

3.0

4QFY16

3QFY16

2.4

3QFY16

2QFY16

2.1

2QFY16

1QFY16

1.6

1QFY16

4QFY15

2.2

4QFY15

3QFY15

2.1

3QFY15

2QFY15

1.7

2QFY15

1QFY15

2.1

1QFY15

4QFY14

3.4

4QFY14

3QFY14

3.0

3QFY14

Source: Company, HDFC sec Inst Research

2QFY14

1.7

2QFY14

-25

1.7

-31 -36

1QFY14

-11

1QFY17

1QFY14

Source: Company, HDFC sec Inst Research

1QFY14

R&D expense was at 10.2% of

sales. (4-5% of sales being
spent on NME research)

3QFY16

15.3

India sales affected by NLEM

price cut (-2.7%) and
Sitagliptin ban in 1QFY17

2QFY16

88

17.2

87

82

1QFY16

84

15.0

82

13.6

81

104

14.5

84

99

21

89

93

21.4

82

92

YoY growth (%)

27.3

US sales (USD m)

17.4

US business grew 24%YoY due

to gMupirocin price hike in
May16

India-branded Formulation Growth Trajectory

4QFY16

US Formulations Growth Trajectory

Source: Company, HDFC sec Inst Research

Page | 3

GLENMARK: RESULTS REVIEW 1QFY17

Europe grew 36.5%YoY

driven by tender wins in
Germany market. Expect to
normalize going ahead.

RoW was also up23.4%YoY

as Russia business grew
more than 50%YoY in 1Q

US business to grow at
33%CAGR over FY17-18E, led
by gZetia launch

Segmental Quarterly Performance

(Rs mn)
India
US
Europe
ROW
Latam
API
Total

1QFY17
5,138
6,982
1,500
1,949
1,556
1,912
19,037

1QFY16
4,654
5,610
1,099
1,580
2,185
1,349
16,477

YoY (%)
10.4
24.4
36.5
23.4
(28.8)
41.7
15.5

4QFY16
5,398
6,520
2,705
2,980
2,416
3,047
23,067

QoQ (%)
(4.8)
7.1
(44.6)
(34.6)
(35.6)
(37.2)
(17.5)

Source: HDFC sec Inst Research

Assumptions
India
Growth (%)
US
Growth (%)
Europe
Growth (%)
RoW
Growth (%)
Latam
Growth (%)
API & Others
Growth (%)
Total
Growth (%)

FY15
17,489
15.8
20,398
0.6
6,445
27.4
8,123
(17.7)
7,640
88.8
6,352
11.1
66,447
19.8

FY16
21,093
20.6
24,203
18.7
7,171
11.3
9,033
11.2
7,495
(1.9)
7,502
18.1
76,496
10.6

FY17E
23,835
13.0
35,862
48.2
8,246
15.0
10,387
15.0
5,996
(20.0)
7,879
5.0
92,205
15.1

FY18E
27,648
16.0
42,728
19.1
9,896
20.0
11,946
15.0
6,895
15.0
8,233
4.5
1,07,346
20.5

Source: HDFC sec Inst Research

Page | 4

GLENMARK: RESULTS REVIEW 1QFY17

Income Statement (Consolidated)

Year ending March (Rs mn)

Balance Sheet (Consolidated)

FY14

FY15

FY16

FY17E

FY18E

Net Revenues
59,839
Growth (%)
19.4
Material Expenses
18,730
Employee Expenses
10,261
SG&A Expenses
7,867
Other Operating Expenses
10,110
EBITDA
12,870
EBITDA Margin (%)
21.5
EBITDA Growth (%)
21.3
Depreciation
2,168
EBIT
10,702
Other Income (Including EO
328
Items)
Interest
1,886
PBT
9,144
Tax (Incl Deferred)
1,513
RPAT
7,631
APAT
5,423
APAT Growth (%)
(11.8)
Adjusted EPS (Rs)
20.0
Source: Company, HDFC sec Inst Research

65,953
10.2
19,344
12,024
12,291
10,542
11,751
17.8
(8.7)
2,600
9,151

76,340
15.7
23,614
13,782
12,538
12,234
14,172
18.6
20.6
2,691
11,480

564

356

550

750

1,902
7,814
1,190
6,623
4,753
(12.3)
17.5

1,789
10,047
3,028
7,019
7,019
47.7
24.9

1,870
19,667
5,310
14,357
10,600
51.0
37.6

1,646
21,325
5,544
15,780
12,965
22.3
45.9

92,205 1,07,346
20.8
16.4
26,739
32,204
15,574
17,598
12,724
15,673
13,646
16,531
23,521
25,340
25.5
23.6
66.0
7.7
2,534
3,120
20,987
22,221

Year ending March (Rs mn)

FY14

SOURCES OF FUNDS
Share Capital - Equity
271
Reserves
29,562
Total Shareholders Funds
29,833
Minority Interest
133
Long-term Debt
24,808
Short-term Debt
8,383
Total Debt
33,191
Net Deferred Taxes
(5,142)
Long-term Provisions & Others
TOTAL SOURCES OF FUNDS
58,015
APPLICATION OF FUNDS
Net Block
17,452
CWIP
798
Intangible assets
12,729
Total Non-current Assets
30,979
Inventories
9,329
Debtors
21,563
Other Current Assets
8,974
Cash & Equivalents
8,279
Total Current Assets
48,145
Creditors
13,626
Other Current Liabilities &
7,483
Provisions
Total Current Liabilities
21,109
Net Current Assets
27,036
TOTAL APPLICATION OF FUNDS
58,015
Source: Company, HDFC sec Inst Research

FY15

FY16

FY17E

FY18E

271
29,732
30,003
(2)
25,744
12,256
37,999
(6,933)
61,068

282
42,420
42,702
(3)
24,873
15,008
39,881
(9,073)
73,507

282
55,787
56,069
(3)
19,898
15,008
34,906
(9,073)
81,899

282
70,577
70,859
(3)
15,919
15,008
30,927
(9,073)
92,710

16,304
4,923
12,135
33,361
12,690
25,118
7,973
8,003
53,783
20,457

19,471
5,726
14,452
39,650
15,678
24,926
9,678
9,354
59,637
21,961

22,937
5,726
14,452
43,116
16,420
32,840
13,894
4,917
68,071
23,241

25,817
5,726
14,452
45,996
19,116
38,233
16,175
7,040
80,565
25,587

5,620

3,819

6,047

8,264

26,077
27,707
61,068

25,779
33,857
73,507

29,288
38,784
81,899

33,851
46,714
92,710

Page | 5

GLENMARK: RESULTS REVIEW 1QFY17

Cash Flow
Year ending March (Rs mn)
FY14
Reported PBT
6,969
Non-operating & EO items
1,847
Interest expenses
1,886
Depreciation
2,168
Working Capital Change
(885)
Tax Paid
(2,852)
OPERATING CASH FLOW ( a )
9,133
Capex
(4,824)
Free cash flow (FCF)
4,309
Investments
(7)
Non-operating Income
328
INVESTING CASH FLOW ( b )
(4,503)
Debt Issuance/(Repaid)
4,581
Interest Expenses
(1,886)
FCFE
7,325
Share Capital Issuance
(2,619)
Dividend
(635)
FINANCING CASH FLOW ( c )
(559)
NET CASH FLOW (a+b+c)
4,072
EO Items, Others
2,175
Closing Cash & Equivalents
1,896
Source: Company, HDFC sec Inst Research

Key Ratios
FY15
5,943
1,307
1,902
2,600
(947)
(2,981)
7,823
(4,982)
2,841
(34)
564
(4,453)
4,674
(1,902)
6,143
(3,630)
(952)
(1,810)
1,561
1,871
(310)

FY16
10,047
(356)
1,789
2,691
(4,799)
(5,169)
4,204
(8,980)
(4,776)
15
356
(8,609)
1,881
(1,789)
(4,313)
6,670
(990)
5,772
1,367
1,367

FY17E
19,667
(550)
1,870
2,534
(9,363)
(5,310)
8,848
(6,000)
2,848
550
(5,450)
(4,975)
(1,870)
(3,447)
(990)
(7,835)
(4,437)
(4,437)

FY18E
21,325
(750)
1,646
3,120
(5,808)
(5,544)
13,988
(6,000)
7,988
750
(5,250)
(3,980)
(1,646)
3,113
0
(990)
(6,616)
2,122
2,122

FY14
PROFITABILITY (%)
GPM
68.7
EBITDA Margin
21.5
APAT Margin
9.1
RoE
18.9
RoIC (or Core RoCE)
18.0
RoCE
12.6
EFFICIENCY
Tax Rate (%)
16.5
Fixed Asset Turnover (x)
1.6
Inventory (days)
56.9
Debtors (days)
131.5
Other Current Assets (days)
54.7
Payables (days)
83.1
Other Current Liab & Provns (days)
45.6
Cash Conversion Cycle (days)
114.4
Debt/EBITDA (x)
2.6
Net D/E (x)
0.8
Interest Coverage (x)
5.7
PER SHARE DATA (Rs)
EPS
20.0
Dividend
2.0
Book Value
110.0
VALUATION
P/E (x)
42.3
P/BV (x)
7.7
EV/EBITDA (x)
19.7
EV/Revenues (x)
4.2
OCF/EV (%)
3.6
FCF/EV (%)
1.7
FCFE/Mkt Cap (%)
3.2
Dividend Yield (%)
0.2
Source: Company, HDFC sec Inst Research

FY15

FY16

FY17E

FY18E

70.7
17.8
7.2
15.9
14.6
10.7

69.1
18.6
9.2
19.3
12.5
12.3

71.0
25.5
15.6
29.1
19.9
20.2

70.0
23.6
14.7
24.9
19.2
19.5

15.2
1.7
70.2
139.0
44.1
113.2
31.1
109.0
3.2
1.0
4.8

30.1
1.7
75.0
119.2
46.3
105.0
18.3
117.2
2.8
0.7
6.4

27.0
1.8
65.0
130.0
55.0
92.0
23.9
134.1
1.5
0.5
11.2

26.0
1.9
65.0
130.0
55.0
87.0
28.1
134.9
1.2
0.3
13.5

17.5
2.0
110.6

24.9
3.0
151.3

37.6
3.0
198.7

45.1
3.0
251.1

48.2
7.6
22.1
3.9
3.0
1.1
2.7
0.2

34.0
5.6
19.0
3.5
1.6
-1.8
-1.8
0.4

22.5
4.3
11.4
2.9
3.3
1.1
-1.4
0.4

18.7
3.4
10.4
2.4
5.3
3.0
1.3
0.4

Page | 6

GLENMARK: RESULTS REVIEW 1QFY17

RECOMMENDATION HISTORY
Glenmark

Date
16-Aug-16

TP

1,300

CMP
845

Reco
NEU

Target
925

1,200
1,100
1,000
900
800
700

Aug-16

Jul-16

Jun-16

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

600

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 7

GLENMARK: RESULTS REVIEW 1QFY17

Disclosure:
I, Amey Chalke, MBA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach
different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served
as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research
Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475

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