Asset monetisation, sales uptick in US key triggers for Glenmark Pharma

The India business is expected to post double digit growth in FY22

Revenue growth reported by Glenmark Pharma in the December quarter was entirely due to the Indian operations and higher active pharmaceutical ingredient (API) sales.

Supported by higher sales of Covid drug Fabiflu, growth in the domestic market (31 per cent of sales) was up 11 per cent as compared to the year-ago period. While Fabiflu sales have come down on a sequential basis, the company gained market share in key therapies and the base business outperformed the sector in the quarter. API sales registered growth of 22 per cent YoY. This helped the company post consolidated sales growth of just under 2 per cent in the quarter.

The disappointment was the sales in the US market, which reported a 2 per cent decline. Though the company has a strong portfolio of 167 abbreviated new drug applications and 44 are pending approval, the company’s dermatology portfolio is facing pricing pressures, say analysts at ICICI Securities.

The company is looking at improving the number of launches from its Monroe (US)-based facility which, coupled with lower price erosion, should help the geography post 10 per cent growth in FY22. The US accounted for 28 per cent of Q3 revenues.

Even though overall revenue growth was muted, the margin performance both at the gross and operating level was better due to a superior product mix and lower other expenditure, including research and development costs. While operating profit margin was up 790 basis points YoY to 20.9 per cent, the company indicated that it can sustain these levels led by improved performance in the key markets of India and the US, and reduction/rationalisation of costs.

The key trigger for the stock will be deleveraging and asset monetisation. The company, which has a net debt of Rs 3,614 crore at the end of the December quarter, expects a reduction of Rs 200-300 crore in FY21 and a higher proportion in FY22. Divestment of non-core business, and monetisation of R&D assets, which include a stake sale in its 100 per cent subsidiary Ichnos Science, will be the key monitorable in the near term. While the stock at a valuation of 12-13 times FY22 and FY23 earnings is reasonable, investors should await an improvement in US sales growth and debt reduction before considering it.