Domestic growth trajectory to remain strong for Glenmark in near term

Debt reduction key if the stock is to fetch higher valuation multiples

After posting the highest growth among top Indian pharma firms in FY21, Glenmark Pharmaceuticals is expected to maintain the growth trajectory in the near term. The trigger for the same would be the higher demand for Covid-related drugs such as favipiravir and traction in the non-Covid portfolio. The stock is up 15 per cent since the start of the month (5 per cent on Thursday) on growth expectations and likely reduction of debt in FY22.

Rahul Jeewani and Yash Rachh of IIFL Securities say that with India experiencing its second wave of Covid infections and having surpassed previous peak daily case additions, companies such as Glenmark, Cipla and Cadila could benefit from traction in their Covid-drug portfolio in FY22 as well.

Glenmark has the highest market share in favipiravir and the 23 percent domestic growth in March was aided by strong demand for the Covid drug. Its cardiac and dermatology drugs too reported a 20 per cent growth in the month adding to the sales momentum. In FY21, its growth at 15 per cent was the highest in the domestic market for top pharma names. Given the market share gains it is expected to move up from the 11th position it holds currently.  

Though domestic growth has been strong, the street will keep an eye out for traction in the US market and progress on the debt reduction front. In the March quarter, while domestic growth is expected to be 10-14 per cent, US growth would be flat or lower single digits. New launches in the quarter are expected to offset price erosion pressures.

A major trigger for the stock would be the company’s plans to bring down debt levels from the current Rs 3,640 crore. In addition to higher cash flows in the current year, steps to reduce debt would include the listing of its active pharmaceutical ingredient unit. The segment posted 15 per cent y-o-y growth in the first nine months of FY21. Monetisation of R&D assets (stake sale in its 100 per cent subsidiary Ichnos Science) and outlicensing deals are other options for deleveraging.

At the current price the stock is trading at 14 times its FY22 earnings estimates and could see a rerating if there is progress on the debt reduction front.