1 November 2013
2QFY14 Results Update | Sector:
Healthcare
Glenmark Pharma
BSE SENSEX
21,197
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel.Per (%)
S&P CNX
6,307
GNP IN
271.0
612/418
-8/0/12
CMP: INR540
TP: INR610
Buy
M.Cap. (INR b) / (USD b) 146.4/2.4
Financials & Valuation (INR b)
Y/E MAR
Sales
EBITDA
Net Profit
Adj. EPS
(INR)
EPS Gr. (%)
BV/Sh.
(INR)
RoE (%)
RoCE (%)
Valuations
P/E (x)
29.3
23.0
4.4
13.0
0.6
17.7
3.6
11.2
0.7
P/BV (x)
5.3
EV/EBITDA 15.9
( )
Div.Yld (%) 0.4
2013 2014E 2015E
50.1
10.6
5.0
18.4
53.9
102.0
18.1
16.1
60.5
12.5
6.4
23.5
27.6
122.4
19.2
18.8
13.9
70.5
14.4
8.3
30.5
29.7
148.2
20.6
20.5
15.2
Payout (%) 10.2
Operational performance in-line:
Glenmark (GNP) posted in-line operational
performance for 2QFY14. Core sales (excluding licensing income) grew 19% YoY to
INR14.5b (v/s our estimate of INR15.2b). Core EBITDA grew 28% YoY to INR3b (in
line) and core PAT grew 1% YoY to INR1.4b (v/s our estimate of INR1.8b). Licensing
income was INR118m (we had not anticipated any licensing income for the
quarter).
Sales growth in LatAm, semi-regulated markets slower than expected:
Sales
growth was driven by stronger than expected growth in domestic formulations (up
21% YoY) and US generics business (30% YoY, partly currency-led). In LatAm (down
3% YoY) and semi-regulated markets (down 11% YoY), sales growth was slower
than expected.
Adjusted PAT significantly below estimate:
Core EBITDA margin expanded 150bp
YoY to 20.9% (v/s 19.7%), driven by better sales mix, with increasing contribution
from recently launched products in the US. Adjusted PAT was significantly below
estimate despite strong EBITDA margin, due to higher depreciation and taxes
(effective tax rate at 28.5% v/s our estimate of 18%).
Guidance:
While GNP has maintained its 20% sales growth guidance for FY14, to
be driven by the US and India, it expects to exceed its earlier EBITDA guidance of
INR12.25b. On the negative side, GNP has raised its tax rate guidance to 22-23%
from 19%, and has indicated higher depreciation, going forward.
Cutting estimates; maintain Buy:
Post 2QFY14 results, we have cut our FY14/FY15
EPS estimates by 7%/4%, mainly due to higher depreciation and tax expense,
despite estimating higher EBITDA growth. We expect GNP to gradually reduce its
net debt over FY14-15, resulting in D/E improving from 1x in FY13 to 0.6x by FY15.
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, GNP has been aggressive in adding new NCEs to its
pipeline, which will put pressure on its operations in short-to-medium term, as it
will have to fund R&D expenses for these NCEs. The stock trades at 23x FY14E and
17.7x FY15E EPS. Maintain
Buy
with a revised target price of INR610.
Alok Dalal(Alok.Dalal@MotilalOswal.com);+91
22 3982 5584
Hardick Bora(Hardick.Bora@MotilalOswal.com);+91
22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.

Glenmark Pharma
Core revenue was 5% below est. impacted by continued slowdown in SRMs
Net sales were up 17% YoY to INR14.6b (v/s our estimate of INR15.2b). Core
revenues (excl. one-offs) grew 19% YoY.
Sales growth was driven by stronger than expected growth in domestic formulations
(up 21% YoY v/s est. 13%) and US generics business (30% YoY v/s est. 23%). Sales
disappointment was led by slower than expected growth in semi-regulated markets
(down 11% YoY v/s est 30%) and LatAm (down 3% YoY v/s est. 17% growth).
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
2QFY14
13,501
7,339
4,177
527
900
1,736
6,162
66
5,579
517
1,011
118
14,630
2QFY13
11,447
6,697
3,440
379
937
1,941
4,749
54
4,307
389
1,105
0
12,552
16.6
% YoY
17.9
9.6
21.4
38.9
-4.0
-10.6
29.7
23.4
29.5
33.1
-8.5
1QFY14
11,046
6,074
3,286
261
841
1,686
4,972
37
4,470
465
1,333
0
12,379
18.2
% QoQ
22.2
20.8
27.1
101.5
6.9
3.0
23.9
79.1
24.8
11.2
-24.2
However, core EBITDA was in line; aided by better sales mix
We estimate core EBITDA to have grown 28% YoY to INR3b (in line), with core
EBITDA margins expanding 150bps YoY to 20.9% (v/s est. 19.7%). Improvement was
driven by better sales mix with increasing contribution from recently launched
products in US.
Adjusted PAT stood at INR1.4b (v/s est. INR1.8b), up 1% YoY. PAT is below our
estimate due to higher depreciation and tax rate (at 28.5% v/s est. 18%).
EBITDA TREND
Source: MOSL, Company
1 November 2013
2

Glenmark Pharma
Key highlights from 2QFY14 Concall
India:
GNP continues to outpace the industry growth rate as some of its peers
have reported a dismal quarter for this segment. The management has
maintained its guidance of 18-20% growth for FY14E. As such, GNP will continue
to outperform the average industry growth rates as it expects negligible impact
from the pricing policy.
USA:
As expected, US generics have shown revival in strong, aided by new
launches. During the quarter, GNP filed for 2 ANDAs and has received approval
for 4 products. Management expects 18-20% growth in constant currency in
FY14E. GNP has 53 ANDAs pending approval with the US FDA. Management
expects 3-4 large product launches every year that can drive growth, although
their commercialization is subject to timely approval.
LatAm and Semi-regulated markets:
The management expects 20-25% from
Latin American market. Brazil is the largest and most important market which is
lagging. This will be offset stronger growth in other LatAm markets. Growth in
other semi-regulated markets is expected between 13-15%.
The company now expects to exceed its
earlier EBITDA
guidance of INR12.25b
for FY14E. Excluding the impact of out-licensing income in FY13, this implies
more than 21% YoY growth in core EBITDA.
Gross debt
has reduced from INR100m on constant currency terms to
INR21.35b. Cash & equivalents on books have increased from INR6b to INR10b,
which is set aside to retire debt. The company maintained that focus is on
lowering absolute debt as opposed reducing the gearing.
Depreciation
for quarter has increased due to (1) increased amortization and (2)
commissioning of facilities. CWIP has of ~INR2b has been commercialized which
is now subject to depreciation. Upfront payment made on in-licensed products
launched in Central Eastern Europe is being amortized. As such, depreciation
base will be formed at INR600m/quarter up from the INR350m run-rate.
R&D costs
are guided to be between 9-9.5% of sales;
Capex guidance
stands at
INR3-3.5b.
Trying to build a differentiated portfolio for the US market – Expect strong
growth ahead
Glenmark currently has ~53 ANDAs pending US FDA approval. It has already
launched 12-15 oral contraceptives (OCs) in the US over the last two years.
We note that the company is focussing on niche opportunities in the
Dermatology, Controlled Substances and Oncology space and has also started
receiving some approvals in these categories which is a long-term positive.
Strong guidance of 20 ANDA filings (more than half of them in niche segments),
indicates that the company is investing to build a healthy product pipeline to
support long-term growth.
Management has indicated that ~75% of the total pending ANDAs are in the
niche / low-competition category and will thus result in a differentiated
portfolio in the long-term.
1 November 2013
3

Glenmark Pharma
Glenmark - US Revenue ramp-up (USD m)
Source: MOSL, Company
Sustained growth momentum in India formulations business
GNP has recorded a strong 20% CAGR for its India formulations (DF) business
over the past five years with 31% YoY growth in FY13.
As per MAT September 2013 IMS data, GNP has grown by more than 5% faster
than the industry. GNP has also gained 2 ranks to be 19th in the industry.
With negligible impact expected from the Pharma Pricing Policy, we believe the
company will continue to outperform the domestic market in the near term.
We expect the company to outperform the average industry growth of 14-15%
over the next two years.
Glenmark - Sustained growth in India formulations business
Source: MOSL, Company
1 November 2013
4

Glenmark Pharma
Improvement in return ratios – driven by shorter working capital cycles and
debt reduction
Return ratios are expected to gradually improve over the next two years with
RoCE estimated to improve from 16% to 21% and RoE expected to improve from
18% to 22%.
The improvement will be primarily driven by improved working capital and
expected reduction in debt coupled with sustained growth momentum.
We also expect the company to gradually reduce its debt/equity from 1x in FY13
to 0.6x by FY15E.
Return ratios likely to improve over next two years
Net Working Capital (days) (Ex-NCE income)
Source: Company, MOSL
Source: Company, MOSL
Valuation and view
GNP is likely to report the NCE clinical data for various NCEs by end of FY14. This
will be an important news-flow to track as favorable data can facilitate potential
out-licensing deals. However, our estimates exclude these upsides.
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, Glenmark has been aggressive in adding new
molecules to its pipeline, which will put pressure on its operations in short-to-
medium term as it will have to fund R&D expenses for these NCEs.
Post 2QFY14 results, we have lowered our EPS estimates by 7%/4%, mainly due
to higher depreciation and tax expense, despite estimating higher EBITDA
growth.
The stock currently trades at 23x FY14E and 17.7x FY15E EPS. Maintain
Buy
with
target price of INR610 (19x FY15 EPS + INR17 DCF value for Crofelemer & Para-IV
upsides).
1 November 2013
5

Glenmark Pharma
Glenmark Pharma: an investment profile
Company description
Glenmark is one of the second tier integrated
pharmaceutical companies which has differentiated
itself through its success in NCE research. The company
has pipeline of 5 Novel drugs in different phases of
clinical studies. It is also one of the leading Indian
generic companies in US with focus on niche generics
segments. Glenmark has large presence in semi-
regulated markets.
Recent developments
None.
Valuation and view
The stock currently trades at 23x FY14E and 17.7x
FY15E with improving return rations.
Buy with target price of INR610 (19x FY15E EPS +
DCF value of INR16/sh for Crofelemer and Para-IV
upsides).
Key investment arguments
Sector view
Glenmark has adopted differentiated generic
strategy for US business which focuses on niche
segments like Hormones, dermatology, controlled
release etc which has limited competition and
better profitability.
It is the most successful Indian company in novel
drug discovery research and has earned US$205m in
milestone payments so far.
Differentiated portfolio in regulated markets and
emerging markets would remain the key sales and
profit drivers in the medium term. Japan is expected
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 of the success of
Glenmark's NCE research (to its market
capitalization); any NCE failures are likely to have
significant adverse impact on investor returns.
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Glenmark
23.0
17.7
4.4
3.6
2.7
2.3
13.0
11.2
DRL
21.5
18.7
4.6
3.8
3.1
2.7
14.3
12.2
Cipla
20.3
18.2
3.2
2.7
3.2
2.8
13.8
12.4
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
23.5
30.5
Consensus
Forecast
27.8
34.1
Variation
(%)
-15.5
-10.7
Target price and recommendation
Current
Price (INR)
540
Target
Price (INR)
610
Upside
(%)
13.0
Reco.
Buy
Shareholding pattern (%)
Sep-13
Promoter
Domestic Inst
Foreign
Others
48.3
7.4
34.0
10.4
Jun-13
48.3
7.1
34.3
10.3
Sep-12
48.3
6.7
33.7
11.3
Stock performance (1-year)
1 November 2013
6

Glenmark Pharma
Financials and valuation
1 November 2013
7

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Glenmark Pharma
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GLENMARK PHARMACEUTICALS LTD
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1 November 2013
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8