10 May 2012
4QFY12 Results Update | Sector: Healthcare
Glenmark Pharmaceuticals
BSE SENSEX
S&P CNX
16,480
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
4,975
GNP IN
269.8
351/263
14/12/31
91.7
1.7
CMP: INR340
TP: INR420
Buy
Note - Company has commenced IFRS accounting wef FY11. Estimates exclude one-off upsides
Glenmark Pharmaceuticals (GNP) posted 30% YoY growth in core topline to INR10.3b (v/s our estimate of INR9.13b).
Core EBITDA was INR1.63b (v/s our estimate of INR1.57b). Core EBITDA margin was 15.8%, lower than our estimate
of 17.1% due to adverse product mix. Adjusted PAT was INR1.33b (v/s our estimate of INR1.36b), partly boosted by
lower than estimated tax outgo.
Core revenue growth was led by 37% YoY growth in the US generics business and 39% YoY growth in the
branded generics business on the back of (1) 38% YoY growth in domestic formulations business, and (2) 41%
YoY growth in semi-regulated markets. Core EBITDA was in line with our estimate at INR1.63b. Core EBITDA
margin was 15.8%, lower than our estimate of 17.1% due to adverse product mix.
Adjusted PAT was in line with our estimate at INR1.33b, partly boosted by lower than estimated tax rate of
4.6% (our estimate: 19.7%). Reported PAT was INR1.52b.
Valuation and view:
Despite the strong 36% topline growth in FY12, net working capital has come down to ~128
days compared to ~200 days for FY11. Improved working capital and moderate capex will give the management
flexibility to target debt reduction. We expect GNP to gradually reduce its net debt over FY13-14, resulting in
debt-equity improving from 1x to 0.4-05x by FY14. Return ratios are likely to gradually improve over the next two
years. Over FY12-14, we expect RoCE to increase from 12.1% to 19.5%, and RoE from 13.5% to 19.8%. Post the
4QFY12 results, our FY13 and FY14 EPS estimates remain largely unchanged at INR19.8 and INR25.6. The stock
trades at 17.2x FY13E and 13.3x FY14E EPS. We upgrade the stock to
Buy,
with a target price of INR420 (16x FY14E EPS
+ INR12 DCF value for Crofelemer and Para-IV upsides).
Nimish Desai
(NimishDesai@MotilalOswal.com); +91 22 3982 5406
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 3982 5423

Glenmark Pharmaceuticals
Topline growth driven by US, branded formulations portfolio
Glenmark Pharmaceuticals (GNP) posted 30% YoY growth in core topline to INR10.3b
(v/s our estimate of INR9.13b). Core EBITDA was INR1.63b (v/s our estimate of
INR1.57b). Core EBITDA margin was 15.8%, lower than our estimate of 17.1% due to
adverse product mix. Adjusted PAT was INR1.33b (v/s our estimate of INR1.36b), partly
boosted by lower than estimated tax outgo.
Core revenue growth was led by 37% YoY growth in the US generics business and 39%
YoY growth in the branded generics business, on the back of (1) 38% YoY growth in
domestic formulations business to INR2.68b, and (2) 41% YoY growth in semi-regulated
markets to INR1.8b. Europe and LatAm branded business grew 39% YoY and 34% YoY,
respectively.
Revenue mix (INR m)
Formulations
Branded
India
Europe-branded
Latam-branded
Semi-regulated mkts
Generics
Latin America
North America
Europe
API & others
NCE Income
Net Sales
4QFY12
9,779
5,944
2,682
720
714
1,828
3,835
37
3,435
364
880
0
10,659
4QFY11
6,856
4,287
1,940
517
532
1,299
2,568
168
2,243
158
1,067
0
7,922
% YoY
42.6
38.6
38.3
39.3
34.3
40.7
49.3
-78.1
53.1
130.6
-17.5
34.5
3QFY12
% QoQ
9,139
7.0
5,607
6.0
2,547
5.3
664
8.4
825
-13.4
1,571
16.3
3,533
8.6
36
3.1
3,190
7.7
307
18.6
933
-5.7
238
10,311
3.4
Source: Company, MOSL
Core EBITDA in line with estimate at INR1.63b
Core EBITDA was in line with our estimate at INR1.63b. Core EBITDA margin was 15.8%,
lower than our estimate of 17.1% due to adverse product mix. Reported EBITDA was
INR1.86b while reported EBITDA margin was 17.5%. Adjusted PAT was in line with our
estimate at INR1.33b, partly boosted by lower than estimated tax rate of 4.6% (our
estimate: 19.7%). Reported PAT was INR1.52b.
EBITDA and margin trend
Source: Company
10 May 2012
2

Glenmark Pharmaceuticals
Balance sheet highlights
On a YoY basis, debtor days have improved from 140 days to 113 days while
inventory days have improved from 100 days to 72 days.
Net debt is high at INR19.3b but should decline over the next two years, led by
improved working capital and moderate capex.
GNP had converted a large portion of its local debt to forex debt in 1QFY12 (current
forex debt is ~USD350m) due to which it is exposed to the risk of MTM forex losses
if the INR were to depreciate significantly against the USD.
Glenmark - FY13 Guidance
Parameter
Guidance
Revenue Gr. (%)
22-25
India formul. Gr. (%)
18-20
US Generics Gr. (%)
20
EBITDA (INR b)
9-9.25
R&D Exp. (% of sales)
6-7
Tax rate (%)
14-15
Source: Company, MOSL
FY13 guidance for base business (excluding R&D licensing income)
The management has guided topline growth of 22-25% excluding R&D licensing
income but including patent challenge upsides. It expects EBITDA at INR9b-9.25b
for the year, which implies a 26% increase on like-to-like basis.
GNP expects R&D expenses to be 6-7% of revenue.
Capex for FY13 would be INR2.5b while tax rate would move up from 9-10% to
14-15%.
Trying to build differentiated portfolio for US; expect strong growth ahead
GNP currently has ~38 ANDAs pending US FDA approval. It has already launched 7 oral
contraceptives (OCs) in the US over the past few quarters but is yet to record meaningful
revenues from them. It expects 3-4 more OC approvals over the next 12 months. The
company has commenced filings for niche opportunities in the Dermatology,
Controlled Substances and Hormones categories and has also started receiving some
approvals in these categories, which is a long-term positive. The management has, in
the past, guided that ~75% of the pending ANDAs are in the niche/low-competition
category, and will thus, result in a differentiated portfolio in the long-term.
Glenmark: US Revenue ramp-up (USD m)
Source: Company, MOSL
Sustained growth momentum in India formulations business
GNP has recorded a strong 18% CAGR for its India formulations (DF) business in the
last five years. We believe that the company will be able to sustain the growth
momentum into FY13 as well, although higher base effect may become visible from
FY14 onwards. However, we expect the company to outperform the average industry
growth of 14-15% over the next two years.
10 May 2012
3

Glenmark Pharmaceuticals
Glenmark: Sustained growth in India formulations business
Source: Company, MOSL
Return ratios likely to improve over next two years
Return ratios are likely to gradually improve over the next two years. Over FY12-14,
we expect RoCE to increase from 12.1% to 19.5%, and RoE from 13.5% to 19.8%. The
improvement would be primarily driven by improved working capital and reduction
in debt, coupled with sustained growth momentum.
Glenmark: Return ratios likely to improve over next two years
Glenmark: P/E Bands
Valuation and view
Despite the strong 36% topline growth in FY12, GNP has shown significant improvement
in working capital, which we view as a positive. Net working capital has come down to
~128 days compared to ~200 days for FY11. High working capital was one of the main
reasons leading to low return ratios in the past. This is likely to gradually correct over
FY13-14. Improved working capital and moderate capex will give the management
flexibility to target debt reduction. High debt was one of the main risk factors in the
past. We expect GNP to gradually reduce its net debt over FY13-14, resulting in debt-
equity improving from 1x to 0.4-05x by FY14. Return ratios are likely to gradually
improve over the next two years. Over FY12-14, we expect RoCE to increase from
12.1% to 19.5%, and RoE from 13.5% to 19.8%.
10 May 2012
4

Glenmark Pharmaceuticals
GNP has differentiated itself among Indian pharmaceutical companies through its
significant success in NCE research (resulting in licensing income of USD205m till
date). Given this success, the company has been aggressively adding new NCEs to its
pipeline, which will continue to pressurize its EBITDA margin in short-to-medium
term, as it will have to fund R&D expenses for these NCEs. Our estimates take into
account the higher NCE R&D expenses. Post the 4QFY12 results, our FY13 and FY14 EPS
estimates remain largely unchanged at INR19.8 and INR25.6. The stock trades at 17.2x
FY13E and 13.3x FY14E EPS. We now attach a slightly higher target P/E of 16x (given the
improvement in working capital and expected reduction in debt), leading to a target
price of INR420 (16x FY14E EPS + INR12 DCF value for Crofelemer and Para-IV upsides).
Upgrade to
Buy.
10 May 2012
5

Glenmark Pharmaceuticals
Glenmark Pharmaceuticals: an investment profile
Company description
Glenmark Pharmaceuticals (GNP) is a second-tier
integrated pharmaceutical company, which has
differentiated itself through its success in NCE research.
It has a pipeline of 9 novel drugs in different phases of
clinical studies. GNP is a leading Indian generics company
in the US, with focus on niche segments. It has a large
presence in semi-regulated markets.
likely to involve an aggressive ramp-up in presence
in various markets, as the company tries to catch up
with sector leaders. We do not rule out execution
risks for such an aggressive ramp-up strategy.
Recent developments
GNP has received USD5m from Sanofi Aventis
towards milestone payment.
Key investment arguments
GNP has adopted a differentiated generics strategy
for its US business. It is focusing on niche segments
like hormones, dermatology, controlled release, etc,
where competition is limited and thus, profitability
is higher.
It is the most successful Indian company in novel
drug discovery research and has earned USD205m in
milestone payments, so far.
Valuation and view
The stock currently trades at 17.2x FY13E and 13.3x
FY14E EPS.
Upgrade to Buy, with a target price of INR420 (16x
FY14E EPS + DCF value of INR12/share for Crofelemer
and Para-IV upsides).
Sector view
Regulated markets would remain the key sales and
profit drivers in the medium term. Japan is likely to
emerge as the next growth driver, particularly for
companies with a direct marketing presence.
We are overweight on companies that are towards
the end of the investment phase, with benefits
expected to start coming in from the next fiscal.
Key investment risks
Given the significant contribution (to market
capitalization) of the success of GNP's NCE research,
any NCE failures would have significant adverse
impact on investor returns.
GNP is targeting to replicate the success of its NCE
research for its generics business, as well. This is
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
Glenmark
17.2
13.3
3.1
2.5
2.3
2.0
11.8
9.6
DRL
19.8
17.6
4.6
4.1
3.1
2.9
15.5
13.9
Cipla
19.9
17.3
3.1
2.7
3.3
2.9
14.3
12.6
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
19.8
25.6
FY13
FY14
Consensus
Forecast
21.1
26.0
Variation
(%)
-6.2
-1.5
Target price and recommendation
Current
Price (INR)
340
Target
Price (INR)
420
Upside
(%)
23.5
Reco.
Neutral
Stock performance (1 year)
Shareholding pattern (%)
Mar-12
Promoter
Domestic Inst
Foreign
Others
10 May 2012
48.3
4.6
35.5
11.7
Dec-11
48.3
5.1
34.8
11.8
Mar-11
48.3
6.9
31.2
13.6
6

Glenmark Pharmaceuticals
Financials and Valuation
10 May 2012
7

Disclosures
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement
to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its
affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or
employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliates
or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness
for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest
Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
Glenmark Pharmaceuticals
No
No
No
No
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For U.K.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.S.
MOSt is not a registered broker-dealer in the United States (U.S.) and, therefore, is not subject to U.S. rules. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange
Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S.,
Motilal Oswal has entered into a chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, Marco
Polo and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
Motilal Oswal Securities Ltd
3rd Floor, Hoechst House, Nariman Point, Mumbai 400 021
Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: reports@motilaloswal.com