Neutral on Glenmark Pharma, target price Rs 430: Motilal Oswal

Motilal Oswal has given a neutral rating to Glenmark Pharmaceuticals with a target price of Rs 430. The share price moved down by -4.13 per cent from its previous close of Rs 467.80. The stock’s last traded price is Rs 448.50.

Glenmark Pharma ended FY20 in the third consecutive year of earnings decline, though at a lower intensity versus previous years. The outlook is improving, led by cost reduction initiatives in R&D as well as other operating expenses. According to the brokerage, reduced price erosion in the US base business, supported by new launches, would further strengthen the earnings trajectory going forward.

Investment Rationale


Glenmark Pharma expects 10 ANDA launches in the US in FY21. It has indicated launches of injectables/nebulizers in FY21. R&D expense in FY21 is expected to be lower than in FY20 on an absolute basis as well as in terms of percentage of sales in FY21
The brokerage has raised its EPS estimate by 3 per cent/8 per cent for FY21/FY22 to factor better traction in the US business / domestic formulations and cost rationalisation benefits. Motilal Oswal expects a 14 per cent earnings CAGR over FY20–22, led by a sales CAGR of 11 per cent/10 per cent for India/Europe, better prospects for the US business, and improved profitability.

It values Glenmark Pharma on a 13 times 12 month forward earnings basis to arrive at a price target of Rs 430. The brokerage maintains neutral rating as the current valuation adequately factors an earnings upside over the medium term.

The brokerage says that while the earnings trajectory is improving, it is yet to see meaningful improvement in return ratios.

Source: Motilal Oswal

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 2767.49 crore, up 1.17 per cent from last quarter sales of Rs 2735.56 crore and up 9.56 per cent from last year's same quarter sales of Rs 2526.08 crore. The company reported net profit after tax of Rs 220.31 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 46.62 per cent stake in the company as of March 31, 2020, while FIIs held 28.51 per cent, DIIs 6.74 per cent and public & others 18.13 per cent.