Glenmark Pharmaceuticals: Q4FY2013 results-First cut analysis Result highlights
- Q4FY2013 results better than expected: Glenmark Pharmaceuticals (Glenmark Pharma) reported a 25.3% year-on-year (Y-o-Y) rise in its net sales to Rs1,335.5 crore (vs our estimate of Rs1,330 crore) in Q4FY2013. The core operating profit margin (OPM; ie excluding licencing income) jumped by 448 basis points year on year (YoY) to 19% on account of a sharp reduction in the raw material costs. This led the profit before tax to increase by 40% YoY to Rs31.8 crore. Moreover, a lower effective tax rate (2.6% in Q4FY2013 vs 5.8% in Q4FY2012) helped the company to report a 44.9% Y-o-Y rise in the adjusted net profit to Rs167.2 crore (adjusted for foreign exchange [forex] loss or gains) during the quarter. However, due to a forex loss during the quarter vs forex gains (Rs35 crore in Q4FY2012), the reported net profit jumped by 11.2% YoY to Rs167.2 crore.
- Domestic and European formulation business gave positive surprise: During the quarter, the specialty business (branded formulation) jumped by nearly 25% YoY to Rs741 crore, mainly driven by the Indian branded formulation business, which jumped by 32.4% YoY to Rs355 crore (vs our estimates of Rs328 crore). Moreover, the European specialty business witnessed signs of recovery while registering a growth of 25% YoY to Rs90 crore during the quarter. The European generic business also reported a 62% Y-o-Y rise in the revenues to Rs59.1 crore during the quarter (vs our estimate of Rs40 crore). Though the impressive rise in the domestic and European formulation business came as a positive surprise during the quarter, an absence of licencing income during the quarter mitigated the impact.
- Lower licencing income and sharp rise in tax impacted profit growth in FY2013: During FY2013, the net revenues jumped by 24.7% YoY to Rs5,012 crore, despite an 81% Y-o-Y fall in the licencing income. The core OPM remained nearly flat at 19.4% in FY2013 vs 19.8% in FY2012. However, the higher depreciation and a sharp jump in the effective tax rate (15.1% in FY2013 vs 3.1% in FY2012) impacted the core net profit (excluding the lincencing income) resulting in a moderate 11.5% Y-o-Y rise to Rs569.5 crore. The reported net profit jumped by 34% YoY to Rs614.8 crore, mainly due to an exceptional expenditure of Rs284 crore in FY2013. The revenues and adjusted profit during FY2013 were marginally better than our expectation.
- Valuation: The stock is currently trading near 22.7x and 16.9x core earnings for FY2014 and FY2015. We have Buy recommendations on the stock with a price target of Rs600.
Updated At 2:50 Pm 8/MAY/Delhi/India