Stock Pick From Pharmaceuticals Sector

The Indian branded generics dominate the pharmaceutical markets globally, contributing about 70 to 80 per cent of the entire market. India is the largest provider of generic drugs globally with the Indian generics accounting for 20 per cent of global exports in terms of volume. According to India Ratings, the Indian pharmaceutical industry is estimated to grow at 20 per cent compound annual growth rate (CAGR) over the next five years. Considering positive sentiments across the sector, Glenmark Pharmaceutical (GPL) will be able to generate ample amount of business in near term.

GPL operates across three verticals such as drug discovery, formulation business and generic business. The company has approximately 18 manufacturing facilities in six countries and has around six research and development centres. Out of its total number of manufacturing facilities, eight are (United States Food & Drug Administration) USFDA approved. GPL commissioned new (Good Manufacturing Practices) GMP-grade biologics plant in Switzerland with up to 250 L batch size in year 2015.

GPL’s current portfolio consists of 108 products authorised for distribution in the US marketplace. The company has about 61 Abbreviated New Drug Applications (ANDAs) pending approval with the USFDA. It is also identifying and exploring external development partnerships to supplement and accelerate the growth of company’s existing pipeline and portfolio.

GPL received final approval from USFDA for 2.5 mg Frovatriptan Succinate tablets, the therapeutic equivalent to the reference listed drug product, 2.5 mg Frova Tablets belonging to Endo Pharmaceuticals. According to IMS Health, sales data for last 12-month period ending January 2016, the Frova market achieved annual sales of approximately USD 87.7 million (Rs 5870 million).

On financial front, GPL’s revenue increased by 3.24 per cent to Rs 1756 crore in Q3FY16 as compared to same period in previous fiscal year. The company’s EBITDA too rose by 39.19 per cent to Rs 370 crore in Q3FY16 on yearly basis. Its EBITDA margin expanded by 543 basis points to 21.05 per cent in Q3FY16 as compared to same period in previous fiscal year.The net profit of GPL boosted by 48.07 per cent to Rs 170 crore in Q3FY16 on yearly basis.

Considering the nine month financials, GPL posted top line of Rs 5279 crore in 9MFY16 with a growth of 8.42 per cent on yearly basis. The company’s EBITDA too rose by 19.93 per cent to Rs 1131 crore in 9MFY16 as compared to same period in previous financial year. Its net profit also rose by 18.06 per cent to Rs 549 crore in 9MFY16 on yearly basis.

Considering geographic segment wise revenue front, GPL earned 35.51 per cent from India, 30.77 per cent from US, 11.52 per cent from Latin America, 10.17 per cent from Europe and remaining 12.03 per cent from Rest of the World during FY15.

On valuation front, GPL is trading at trailing twelve months (TTM) PE multiple of 41.92x times quite in line with industry peers such as Lupin has TTM PE multiple of 41.87x times. Meanwhile the industry PE multiple stood at 29.1x times. Hence we recommend our readers to BUY this stock.