Reduce Glenmark Pharmaceuticals target of Rs 509: Prabhudas Lilladher

Prabhudas Lilladher recommended reduce rating on Glenmark Pharmaceuticals with a target price of Rs 509 in its research report dated Jun 01, 2021.

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Prabhudas Lilladher’s research report on Glenmark Pharmaceuticals

We increase our earnings estimates by 3.0/3.3% for FY22E/23E as we increase increased traction from launch of key drugs in US generics and higher Favipiravir sales in India coupled with second wave of COVID-19. 4QFY21 earnings beat our estimates led by growth in API sales, launch of inhaler products in Europe, cost rationalization and lower tax outgo. However, core issues in GNP remain unresolved given 1) the lack of growth in US derma portfolio (35% of US revenue) due to intense competition 2) thin US product pipeline of generics (47 pending ANDAs) with no major out-licensed deal from NCE portfolio, 3) 60-65% of R&D spends towards uncertain specialty products, 4) insignificant EBITDA contribution from new Monroe facility even with qualitative approvals (due to higher operating cost), 5) appreciating USD to likely increase debt (current net debt Rs35.5bn) and 6) muted growth in CORE India formulations.

Outlook

GNP guided to receive benefits from few short-term opportunities in 1) higher sales of Favipiravir in seconf wave of Covid and 2) launch of 4 key US generics. We believe those short term opportunities are factored in current price though there are valuation gap in GNP in comparison to its peers, which needs to be rationalized. Hence, we increased assigned PE to 14x (earlier 12x) on FY23E earnings to derive our new TP Rs509 (earlier Rs422) and upgraded our recommendation to ‘Reduce’ (earlier Sell).

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