Glenmark Pharma shines as September quarter marks rebound in earnings

Analysts are upgrading their ratings as they expect sales momentum in the US and domestic markets to improve

Glenmark Pharmaceuticals’ better-than-expected July-September quarter performance, after several quarters of weak results, enthused the Street. The stock gained more than 21 per cent on Monday, following brokerage upgrades. 

The quarter proved to be good for both India and US sales, which saw momentum rebound, and was well supported by other geographies. Analysts believe that Glenmark finally seems to be turning the corner, as is evident from its good operational performance and cost management in Q2. JPMorgan says that execution missteps, strategy shifts, and weak cash flow had led to the stock de-rating from 18-19x last year to 10x currently. While these concerns were known and discounted in the stock price, data points from Q2 results do highlight scope for margin improvement in the coming quarters.

The India business, which is about a third of revenues, grew more than 15 per cent year-on-year (YoY) in Q2, led by contribution from diabetes treatment drug, Remogliflozin. Notably, the momentum is expected to continue and the run-rate is expected to double by March 2020, with annualised revenues of Rs 70-80 crore versus Rs 36 crore now. The dermatology portfolio also continues doing well and so is the consumer products business, which recorded 20 per cent YoY growth in Q2.

A little less than a third of revenues, the US sales grew 4.6 per cent YoY and 15 per cent sequentially in Q2. The eight product approvals helped Glenmark grow, despite 5-6 per cent sequential erosion in the prices of its dermatology portfolio. 

The oncology generics of Fulvestrant injection and dermatology Pimecrolimus topical cream are expected to drive growth, feel analysts, who expect these products to attain $30 million annual revenues in the coming quarters. The start of commercial supplies from the Monroe plant by the end of March 2020 and pick-up of injectables and nebuliser sales are seen as other key drivers of US sales.

As capital expenditure requirement of the Monroe plant moderates, it should also help improve cash flows. Glenmark has maintained its guidance to reduce debt by at least Rs 700-800 crore by utilising proceeds from the sale of non-core assets (likely in the second half of 2019-20) and cash-flow from core business.

While the Street will keep an eye out on the progress on these fronts, analysts at HSBC believe the worst is behind and have upgraded the stock to ‘buy’ from ‘hold’, while those at Nomura have arrived at a target price of Rs 653 for the stock trading at Rs 365.